November 2005
www.wao.gov.uk
Funding for the National Botanic Garden
of Wales
Funding provided by the Assembly Government, Welsh Development
Agency and Wales Tourist Board
I have prepared this report for presentation to the National Assembly under the Government
of Wales Act 1998.
The Wales Audit Office study team that assisted me in preparing this report comprised
Nathan Barnhouse, Gillian Body, Manel Dencker, Mark Jeffs, John Robinson and James Verity.
Jeremy Colman
Auditor General for Wales
Wales Audit Office
2-4 Park Grove
Cardiff
CF10 3PA
The Auditor General is totally independent of the National Assembly and Government.
He examines and certifies the accounts of the Assembly and its sponsored and related
public bodies, including NHS bodies in Wales. He also has the statutory power to report to
the Assembly on the economy, efficiency and effectiveness with which those organisations
have used, and may improve the use of, their resources in discharging their functions.
The Auditor General also appoints auditors to local government bodies in Wales,
conducts and promotes value for money studies in the local government sector and
inspects for compliance with best value requirements under the Wales Programme
for Improvement. However, in order to protect the constitutional position of local
government, he does not report to the Assembly specifically on such local
government work.
The Auditor General and his staff together comprise the Wales Audit Office.
For further information about the Wales Audit Office please write to the Auditor General at
the address above, telephone 029 2026 0260, email: [email protected], or see web site
http://www.wao.gov.uk
Report presented by the Auditor General for Wales to
the National Assembly on 24 November 2005
Contents
1
Summary
6
Recommendations
10
Part 1: The Garden project was ambitious in scope
and has required significant additional financial
support from the Assembly Government and others
to keep it operational and to provide a platform for
its sustainable future
12
Scope and methodology
13
The concept of a botanic garden on the Middleton Estate in Llanarthne was first
put forward in 1990
13
The lottery made the project possible
14
The Garden’s business plan was ambitious
15
The Garden had to take steps to deal with capital funding shortfalls before it
opened in May 2000
16
After opening the Garden faced falling income and expenditure higher
than forecast
17
From January 2002, the Assembly Government and the other main funders took
a proactive role in considering the Garden’s problems
19
The Assembly Government provided a series of short-term, revenue funding
packages totalling £1.57 million to support the operation of the Garden
19
In March 2004, the Assembly Government, Millennium Commission and
Carmarthenshire County Council agreed to support a five year Recovery Strategy
for the Garden
21
In 2004-05, the Garden achieved its Recovery Strategy targets
22
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
Contents
2
3
Part 2: Providing capital funding to the Garden
project entailed a number of benefits and risks for
the Welsh funders
24
The proposal for a botanic garden at Middleton was attractive to funders but
involved risks
24
Those involved in administering European funds appraised the Garden’s
applications prior to approving funding but did not fully address risks posed by
changes to the Garden’s business plans
26
The WDA assessed the Garden’s original business plan and recognised that
revenue funding was a risk
30
The Tourist Board believed the Garden’s original business plan was viable but
could have been more robust in assessing later changes to the plans
32
Welsh funders could have communicated and collaborated further to establish the
extent of the financial difficulties facing the Garden
36
Clawback arrangements were in place and would have protected public funds in
certain circumstances
37
Part 3: The Garden’s Science Centre remains
unoccupied over three years after the building was
constructed
39
Plans for the Science Centre were expanded before the Garden opened to include
a start-up facility for scientific entrepreneurs
39
The Science Centre building was constructed in 2002 but there has been very
little scientific activity in the facility
40
Appendices
Appendix 1: Timeline
45
Appendix 2: Changes to the Garden’s Business Plans
46
Appendix 3: Planned phasing of the Garden project
46
Appendix 4: Letter from the Chairman of the Garden
50
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
Summary
The National Botanic Garden of Wales (the
Garden), which opened in May 2000, is one of
the largest Millennium projects in Wales and
remains an important part of the tourist
infrastructure of Wales. About half of the £43.6
million capital funding to the Garden was
provided by the Millennium Commission from
lottery funds. The remainder of the capital funding
came from a range of private and public sector
sources, including £6.3 million from the European
Regional Development Fund (ERDF), for which
the National Assembly for Wales is accountable,
£2.1 million from the Welsh Development Agency
(WDA) and £1.2 million from the Wales Tourist
Board (the Tourist Board).
1
After it opened, the Garden soon ran into financial
difficulties, caused largely by higher than forecast
operational expenditure, subsequently
exacerbated by falling visitor numbers.
It approached its existing funders for additional
resources and, increasingly, sought funds from
the Welsh Assembly Government, which
provided over £1.5 million in short-term revenue
funding. In March 2004, the Assembly
Government, the Millennium Commission and
Carmarthenshire County Council agreed to
provide further funding to the Garden on the
basis of a five year Recovery Strategy designed
to secure the long term future of the Garden. All
the main financial trading targets for the first year
of the Recovery Strategy were met.
2
The Garden intended to establish itself as a visitor
attraction and a centre for scientific research.
Subsequently this idea expanded to incorporate
start-up facilities for scientific entrepreneurs as
part of its science strategy, and following
3
6
discussions with the WDA. However, although a
Science Centre building has been constructed at
a cost of over £3 million, it remains unoccupied:
very little research has taken place in it and no
entrepreneurs have based themselves there.
4
A number of parties have contributed to the
Garden project, including, of course, the Garden
itself which is a registered charity and a company
limited by guarantee, independent of government
and not subject to audit by the Auditor General
for Wales. This report, however, focuses on the
decisions and actions taken by those bodies
accountable for their use of public money to the
National Assembly for Wales – the Welsh
Assembly Government, the WDA and the Tourist
Board. We use the term “the Welsh funders” to
describe these organisations in this report. We
looked at whether their decisions to provide
funding to the Garden were well informed and
whether their investments were subsequently
properly protected. We conclude that:
a the Garden project, by its nature, was
ambitious and risky. During the capital
development phase, Welsh funders carried out
risk assessments and appraisals of the
Garden’s business plans prior to awarding
funding. However, we consider that more
could have been done by the Welsh funders to
mitigate and monitor the risks that they
had identified;
b a number of public sector bodies funded the
Garden and therefore had a stake in its
success or failure. However, in general, the
Welsh funders focused their attention on their
own, relatively small investments. During the
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
capital stage, some Welsh funders were part
of a funders’ liaison group, but this ended in
mid 1997. In 2002, when the Garden was
close to breaching its overdraft limit, the main
funders formed a stakeholder group to seek to
address the issues facing the Garden; and
leaseback agreement with a bank, Lombard,
enabling the capital works to proceed to
completion.
7
When the Garden opened, it initially succeeded in
attracting far more visitors than it had projected.
However, by the second year visitor numbers had
fallen slightly below planned levels with a further
fall the following year. Operating expenditure in
the first three years was much higher than
planned, more than eliminating the initial gains
from the higher visitor income. Throughout the
first year and a half of operation, the Garden
made a number of approaches to the Assembly
Government and other bodies for additional
funding, for both capital and revenue, with
limited success.
8
In January 2002, the Garden approached the
Millennium Commission and Assembly
Government on the basis of a revised Business
Plan, seeking an additional £5 million for capital
works plus a further £750,000 in revenue support
from the Assembly Government. As a result:
c a number of factors lie behind the current
situation in relation to the Science Centre.
Indeed the Science Centre, on a much smaller
scale, exemplifies many of the issues facing
the overall Garden project.
Our more detailed conclusions are set out below.
The Garden project was ambitious in scope and
has required significant additional financial
support from the Assembly Government and
others to keep it operational
5
6
The idea of a botanic garden on the site of
Middleton Hall at Llanarthne in Carmarthenshire
dates back to 1990, but it was not until the
advent of lottery funding in the mid-1990s that
the project started to become a reality.
The Garden’s plans were ambitious: most
national botanic gardens receive annual public
subsidies, often substantial; the Garden planned
to operate without any ongoing revenue subsidy.
It forecast that it would be self-sustaining by the
fourth year of its operations, with the deficits in
the first three years financed through an overdraft
agreed with its bank; in addition, it aimed to raise
a further £2 million of private funds which would
act as a contingency.
During the construction phase of the project, the
Garden faced a shortfall of £1.4 million in the
funding it needed to raise in order to secure an
equivalent amount from the Millennium
Commission. The Garden succeeded in raising
nearly £1 million of this from the private sector
and the Assembly Government. A further
£1.8 million was realised through a lease and
a the main public sector funders came together
in what became known as the Stakeholder
Group to consider how best to proceed;
b the Assembly Government provided a total of
£1.57 million in revenue funding between July
2002 and October 2003 to offset immediate
cashflow problems; and
c the Assembly Government, the Millennium
Commission and Carmarthenshire County
Council worked with the Garden on a recovery
plan and new funding regime.
9
In March 2004, the Assembly Government, the
Millennium Commission and Carmarthenshire
County Council provided a joint funding package
of £300,000 each in the first instance as part of
an agreed Recovery Strategy for the Garden.
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
7
The Assembly Government also stated its
commitment to provide a further £150,000 in
each of the four subsequent years – £100,000 in
relation to the first of these instalments was paid
in April 2005 with the remaining £50,000 due
later in the autumn of that year. These measures
were designed to stabilise the immediate financial
position of the Garden, strengthen its
management and corporate governance
arrangements and to move the Garden closer
to a break even position on its trading activities
by 2009.
Since the Recovery Strategy was put in place,
the Garden’s trading position has improved.
For example, it exceeded its 2004-05 targets for
total visitor numbers (including functions and
events), operating income and gross profit,
resulting in a net trading deficit for the year that
was 15.5 per cent better than forecast. It also
secured an additional £470,000 in private sector
funding for capital enhancement and, from
2006-07, intends to secure significant additional
private sector investment in the Garden.
10
Providing capital funding to the Garden project
entailed a number of benefits and risks for the
Welsh funders
When they considered whether or not to provide
capital funds towards the Garden, Welsh public
funders identified a number of benefits: the
project offered the possibility of regeneration and
economic development in a deprived area as well
as environmental enhancement; it also helped to
secure for Wales a substantial sum of Millennium
Commission funding. However, providing grant
funding for any project entails risks which need to
be managed, and the Garden, by its nature, was
a particularly risky project. Furthermore, in the
four years before it opened, the Garden revised
its operational plans on four occasions. The
revised plans generally forecast higher income
(from increased visitor numbers) and expenditure.
11
8
Although the Welsh funders carried out a range
of appraisals on the applications for funding,
these revisions increased the risks involved in the
project. We found that, while the Welsh funders
recognised the risks involved in the project, in
some cases they could have done more to
mitigate those risks:
a those involved in administering European
funds analysed and fully appraised the
Garden’s applications prior to approving
funding but did not fully address risks posed
by changes to key assumptions in the
Garden’s business plans;
b the WDA stated that it took some assurance
from the fact that the Millennium Commission
had conducted due diligence and risk
assessment of the Garden’s plans, although it
did not see this work at first hand. However,
through its own assessments it calculated that
it would get value from its investment in the
project – through regeneration of the area –
even if additional revenue support was needed
but not forthcoming;
c the Tourist Board initially approved funding on
the basis of a Business Plan that it considered
to be viable. However, it approved further
funding on the basis of a revised plan without
fully assessing the effect of the changed
operational forecasts; and
d one of the tools which can help in assessing
risk is sensitivity analysis – determining the
effect of changes in certain assumptions.
None of the Garden’s business plans seen by
the Welsh funders during the capital
development stage contained any sensitivity
analysis, none of the Welsh funding partners
requested such an analysis from the Garden
nor, with one exception at the Tourist Board,
did the funders conduct their own
sensitivity analysis.
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
12
13
The Welsh funders’ monitoring of the Garden
project was, for the most part, limited to the
specific capital grants that they had provided.
Some of the Welsh funders were part of a
funders’ liaison group, which met during the
early stages of the Garden’s development, but
this group stopped meeting after the middle of
1997. Although Welsh funders were effectively
monitoring the grants that they had respectively
paid to the Garden, we consider that there was
scope for a more collective approach, given the
significant public funding involved, to
communicate and share information about the
progress of the overall project. The funders also
attached conditions to their grants under which
monies might be reclaimed. However, in the
event that the Garden had gone into
administration, in practice clawback would have
been difficult, not least given the position of
other secured creditors.
The need to share information applies equally to
the operational phase of the project, after the
capital work had been largely completed.
Despite a number of warning signals from the
Garden, and notwithstanding the presence of
representatives from Carmarthenshire County
Council and the Millennium Commission on the
Garden’s Board of Trustees (in the latter case as
an observer), the other Welsh funding partners
were not fully and equally aware of the financial
problems of the Garden until April 2002, nearly
two years after it opened. And it was then only
through the joint efforts of the major funders of
the project that a medium-term recovery plan
acceptable to all the parties could be put in
place a further two years later.
The Garden’s Science Centre remains
unoccupied over three years after the building
was constructed
14
Like other national botanic gardens, the
Garden aimed to be a centre for research as
well as a visitor attraction. Unlike other botanic
gardens in the United Kingdom, the Garden’s
scientific activities were planned to require no
government subsidy and would be partly funded
by surpluses from the visitor attraction. By 1998,
the planned use of the Science Centre had
expanded to incorporate twelve specialist
incubator units as a commercial start-up facility
for scientific entrepreneurs, later known as the
BioTechnium. The BioTechnium venture attracted
further grant support from the European
Structural Funds and the WDA – in the latter’s
case as it aligned with its promotion of a
network of Techniums throughout Wales.
15
The costs of constructing the Science Centre
were £3.2 million. However, the remaining
budget for scientific equipment for the Garden’s
research team, £1.4 million, was initially reduced
to £1 million and subsequently to zero owing to
the perceived pressing need to improve the
visitor attraction. This decision had implications
for the BioTechnium, as the Garden had
recognised that the operation of its own,
in-house research facility was an important
factor in attracting scientific entrepreneurs to rent
space in the incubator units.
16
In 2002, the Garden approached the WDA to
take over ownership of the whole Science
Centre, including the BioTechnium. The proposal
included renting back to the Garden the parts of
the building it needed to carry out its own
research. However, the WDA has not yet taken
over ownership. Despite this approach, the
Garden continued with the initial appointment of
management and marketing staff for the
BioTechnium, attracting £95,000 ERDF grant aid
to cover eligible expenditure
17
Since the Science Centre’s construction in 2002,
it has remained unoccupied. The WDA, which
remains committed to making a success of the
BioTechnium concept, has provided some
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
9
a test, through, for example, sensitivity
financial assistance towards essential
maintenance costs. The failure to deliver an
operational Science Centre illustrates a number
of risks inherent to grant providers, such as:
analysis, the impact on the financial
viability of the project of variations to
the operational forecasts of applicants;
and
a trying to support too soon the establishment
b require applicants to include details of
of a facility requiring subsidy from unproven
revenue streams, in this case surpluses from
the visitor attraction;
b the lack of an up-to-date plan which
contingency arrangements in the event
of forecasts not being realised.
ii
incorporates all aspects of the business and
their costs; and
c not having surety of funding for all elements
without which the whole scheme would
founder – in this case the provision of the
Garden’s own scientific research
programme, seen as essential for the
success of the incubator units.
Additional match funding was provided to the
Garden on the basis of revised business plans
without fully assessing the reasons behind, and
the risks posed by, substantial changes to, in
particular, visitor number, income and
expenditure forecasts. In future, Welsh public
funders should identify and assess
changes to business plans of large capital
projects, when they are in the capital
development stage, or when ongoing
revenue funding is being provided.
Recommendations
Working collaboratively
Assessing and addressing risks
iii
The Garden’s original business plan was
ambitious; unlike most botanic gardens, the
Garden would be self sustaining – funded
entirely through visitor income and sponsorship
– and would require no public subsidy. On just
one occasion did any of the Welsh funders
carry out a sensitivity analysis of the Garden’s
business plans. It would have been prudent for
Welsh public funders to assess the possible
impact of any variations to test the key
assumptions underpinning the financial viability
of the project, such as the consequences of
not achieving visitor numbers, lower than
expected income, or higher than forecast
expenditure. In future, before providing
funding for large capital projects judged to
be of high risk which are intended to meet
their own ongoing revenue costs, Welsh
public funders should:
i
10
Although individual funders were funding
discrete capital projects, they shared the goal
of creating a successful revenue generating
operation that created jobs and contributed to
economic development. However, Welsh public
funders did not adequately collaborate to share
information about the Garden’s operational
planning and performance, with the result that
they had different information about which plan
the Garden was working to, and were not fully
and equally aware of the extent of the problems
until the Garden had reached crisis point.
In future, where a number of Welsh public
bodies are providing funding to the same
project, they should, as far as is
practicable, share information and
collaborate to, for example:
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
a assess the operational viability of
projects they are considering funding;
and
b ensure that during the construction
phase of projects, progress is monitored
and any changes to business plans are
assessed.
Science Centre
iv
The Science Centre remains unoccupied and
continues to incur maintenance costs which are
being partially met from public funds. Welsh
public funders should, where appropriate,
work with the Garden to resolve the
ongoing issues of the Science Centre.
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
11
Part 1: The Garden project was ambitious in scope and has
required significant additional financial support from the
Assembly Government and others to keep it operational
and to provide a platform for its sustainable future
incubator units for start-up science enterprises,
which is not currently operational.
1.1 The National Botanic Garden of Wales (the
Garden) is one of the largest Millennium projects
in Wales. It was opened in May 2000 as a
scientific institution dedicated to “conservation,
horticulture, science, education, leisure and the
arts”. The Garden is situated on 568 acres in
Llanarthne, Carmarthenshire and comprises
landscaped grounds, walled gardens,
ornamental woodlands, restored lakes, shop,
restaurant, theatre and exhibitions. One of the
Garden’s main attractions is its Great Glass
House, the world’s largest single span oval glass
house, designed by Sir Norman Foster. The
Garden also contains a Science Centre built to
house facilities for botanical research, including
1.2 The Garden is a registered charity and a
company limited by guarantee. It has a Board of
Trustees who are also Directors of the Company.
About half of the £43.6 million capital funding to
the Garden was lottery money provided by the
Millennium Commission. The remainder of the
capital funding came from a range of sources,
including the European Regional Development
Fund, the Welsh Development Agency (the
WDA) and the Wales Tourist Board (the Tourist
Board) – Figure 1.
Figure 1: Sources of capital funding for the Garden
Source of funding
Millennium Commission
Planned funding
(Business Plan May 1996) £m
Funding committed
(December 2004) £m
21.7
22.2
European Regional Development Fund*
7.5
6.3
Carmarthenshire County Council
2.5
2.4
Welsh Development Agency
2.5
2.1
Wales Tourist Board
0.3
1.2
Other public bodies
0.5
0.3
Sub-total
35.0
Private sector**
8.4
TOTAL
43.4
34.6***
9.0
43.6***
* The National Assembly, and previously the Welsh Office, is the accountable body for this funding
** This includes contributions from charities, funding generated by the Garden itself, landfill tax credits, a leaseback scheme (see paragraph 1.15), and
contributions in kind
*** The figures do not correspond with the total because they have been rounded to the nearest £100,000
Source: Wales Audit Office
12
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
Scope and methodology
1.3 This report focuses on the actions of those
organisations accountable to the National
Assembly for Wales – the Assembly Government
itself (including the Welsh European Funding
Office, WEFO, which administers the European
Regional Development Fund) and its
predecessor, the Welsh Office; the WDA and the
Tourist Board. We refer to these bodies in this
report as “the Welsh funders”. The Garden itself
is not subject to audit by the Auditor General for
Wales, while the Millennium Commission is
audited by the Comptroller and Auditor General
on behalf of the Westminster Parliament.
1.4 This part of the report sets out how the Garden
project came into being, how it fared in the initial
years after opening and the actions of the
Assembly Government once the Garden turned
to it for financial support in January 2002.
I Part 2 of the report considers in detail the
decisions by the Welsh funders to finance the
project, whether those decisions were
soundly based and how well the attendant
risks were managed.
I Part 3 of the report examines the Science
Centre which forms part of the overall project but
sits outside the main Garden visitor attraction.
1.5 In carrying out our examination, we interviewed
officials from the Assembly Government
(including WEFO), the WDA and the Tourist
Board and conducted an extensive review of the
documents held by those bodies relating to this
project. We spoke to officials from the Millennium
Commission and Carmarthenshire County
Council. We visited the Garden and interviewed
those currently involved in running the project;
the Garden has also provided further information
on request. And, for comparative purposes, we
visited the Eden project in Cornwall.
The concept of a botanic garden on the
Middleton Estate in Llanarthne was first
put forward in 1990
1.6 A “concept appraisal” for a national botanic
garden at Middleton Hall, Llanarthne,
Carmarthenshire, was first developed in 1990,
by the Royal Botanic Gardens, Kew, on behalf of
Dyfed County Council and the Welsh Historic
Gardens Trust. Middleton is a late-eighteenthcentury country estate that was primarily used
for agriculture, the old Middleton Hall having
burnt down in the 1930s. The site offered a
number of benefits to a botanic garden, such as
its varied topography and associated
microclimate, and relative freedom from
pollution. The garden envisaged would blend the
traditional and the contemporary to create “an
innovative national institution serving horticultural
and botanical science, and above all the people
of Wales”.
1.7 A feasibility study in 1991 by a team of
consultants, commissioned by the project
sponsor, estimated the capital costs of the
project at £18.75 million with a projected annual
deficit of £800,000, based on visitor numbers
reaching 378,000 a year. Although the Welsh
Office agreed in principle to Wales having its
own botanic garden it decided that, even if the
Garden were to secure the necessary capital
funding, the continued deficit would not justify
the Welsh Office’s support. The Welsh Office
also considered that visitor projections were too
high, approaching one third of those of Kew.
1.8 In 1993, the Welsh Office commissioned its own
feasibility report, led by Eres, a Cardiff-based
group of consultants, into a national botanic
garden for Wales. The consultants identified four
potential sites in Wales which best matched their
criteria: Middleton; Bute Park in Cardiff; Clyne
Country Park in Swansea; and Penhein in
Monmouthshire. The report concluded that no
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
13
one site emerged as a clear winner – each was
found to have its own strengths and
weaknesses. In Middleton’s case, its strengths
were the organisation behind it and its historical
connections on a pollution-free site; its main
weakness was perceived to be its
uncompetitiveness in terms of attracting visitors
and therefore its ability to generate income –
consequently it was the option with the largest
forecast annual operating deficit. The key
financial data relating to each site are shown in
Figure 2.
The lottery made the project possible
The Millennium Commission
The Millennium Commission was established in 1993 as
a distributor of proceeds from the National Lottery. The
organisation was to operate only in the short term to
fund projects to “celebrate the end of the second
millennium and the start of the third”. The Commission
provided capital funding to innovative projects that
would not normally be supported by public funds.
Projects applying for funding were assessed against the
following criteria: they should:
I
enjoy public support and be for the public good
I
make a substantial contribution to the life of the
community they were designed to serve
I
have sufficient support from public and/or private
sector to match lottery funds
I
be a viable concern once the Commission element
of funding was complete
I
demonstrate high standards of design and architecture
I
be operational within a certain timeframe
I
have a management team to lead the project to
completion, and satisfactory plans for the
management of the project upon completion
1.9 After the Eres report was published, the Welsh
Office decided that it would not alter its original
standpoint: although it was in favour of having a
national botanic garden in Wales, it was not
prepared to provide the capital and revenue
funding that such a project would need. Instead,
the Welsh Office advised the four sites of the
availability of lottery funding from the then newly
formed Millennium Commission – see box.
Figure 2: Sources of capital funding for the Garden
Middleton
Capital costs £m
Clyne
Bute Park
Penhein
22
22
17
23
60-180
195-230
305-360
540-555
Annual operating profit/(deficit)
£m
(1.3)
(1.25)
(0.6)
0.1
Net present value over 40 years
£m
-35.8
-35.1
-24.1
-22.0
Projected visitor numbers by
2004-05, 000s
Source: Wales Audit Office
14
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
also secured “in principle” approval for funding
from the WDA (paragraph 2.20) and the Tourist
Board had confirmed that “in principle” the
Garden was eligible to apply for funding
(paragraph 2.24).
1.10 Of the four sites shortlisted from the Eres report,
Middleton had the most developed organisation
behind it, enabling it to apply for the Millennium
Commission’s first round of funding in 1995. In
the event, none of the other three sites applied
for Millennium Commission funding1, leaving
Middleton with little competition from other
bidders for a national botanic garden. Middleton
also benefited from the prospect of European
Regional Development Fund (ERDF) funding (see
paragraphs 2.5 to 2.7), and the Welsh Office’s
decision to bring forward the creation of the A48
interchange leading to the Garden within its
transport programme, in response to the
Millennium Commission’s stipulation that the
Garden have improved access in order for it to
consider providing any funding. Middleton had
The Garden’s business plan was
ambitious
1.11 In February 1996, the Millennium Commission
announced that it would be prepared, subject to
further negotiations, to award a grant to
establish the Garden. The Garden’s revised
business plan, finalised in May 1996, assumed
an opening in May 2000. The key elements are
set out in Figure 3 below 2.
Figure 3: Forecasts in the May 1996 Plan for the year 1 (2000) and year 5 (2004) of operation
Planning assumption
2000
2004
Notes
Visitor numbers (000s)
100
200 Based on an average penetration rate
of 2% of the 10 million residents and
tourists within 2 hours of the site
Visitor income £000
600
1,500 Includes admission fees, guidebooks,
catering and merchandise. Other
income, mainly from functions and
events, was forecast to be £300,00 a
year by 2004
Total expenditure £000
Net deficit from science
£000
Net surplus/(deficit) before
interest £000
1,201
244
(715)
1,446 Includes cost of sales, salaries and
other overheads
134 Income generated from commercial
activities, offset by salaries and
overheads
321 2003 – the fourth year of operations –
was the first when the project was
expected to generate surplus.
However, the cumulative deficit at this
point was forecast at £1.36 million
* Much higher than previous estimates as it now included the Great Glass House
Source: Middleton Botanic Garden Business Plan, May 1996
1 The Buckland Trust in Brecon also applied for Commission funding for a botanic garden, but unsuccessfully.
2 All forecast data in this report are as presented in the original documentation, unadjusted for inflation.
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
15
1.12 Under the Garden’s May 1996 business plan,
the operating deficit in the first three years would
be financed by an overdraft agreed with its bank
which, at the time, had confirmed that it was
willing to consider funding the deficit. After this
point, annual income would exceed expenditure
and the Garden would be self-sustaining. The
plan also stated that the trustees were aiming to
raise an additional £2 million of private funds, not
included in the detailed costings above. These
funds would act as a contingency and would be
in addition to the £8.4 million contribution from
the private sector to the capital costs of the
project (see Figure 1). The funds would be used
to help cover the initial cash deficit in early years
and to provide a cushion against any unforeseen
expenditure during development. The Garden
also forecast that a “sinking fund” of
£1.082 million would be available at the end of
the capital phase, representing unused capital
funding. The Garden planned that this money
would only be used for unforeseen maintenance
costs, in the early stages of the project, and
ongoing enhancement of both the landscape
and entertainment features.
Eden project is built on reclaimed clay pits and is
entirely new, whereas the Garden includes
restoration of an old estate; and the Eden
project styles itself as the “first Rock ‘n Roll
Scientific Foundation”, rather than a botanic
garden. In addition, Cornwall has a much more
developed tourism market than Carmarthenshire.
Figure 4: Government subsidies for national
botanic gardens (2003-04)
Garden
Level of government
support £m
Proportion of
operating cost
Royal Botanic Gardens,
Kew
24.8
71%
Royal Botanic Garden,
Edinburgh
7.0
75%
Note: The subsidies for both Kew and Edinburgh include funding for
scientific work that is undertaken under a “remit” to the Department for
Farming and Rural Affairs and the Scottish Executive respectively.
Source: Wales Audit Office
The Garden had to take steps to deal
with capital funding shortfalls before it
opened in May 2000
1.13 The assumption in the Garden’s business plan –
that it would not require ongoing public revenue
support funding – was ambitious. Most national
botanic gardens receive some form of public
funding. The Royal Botanic Gardens, Kew and
the Royal Botanic Gardens, Edinburgh receive
substantial grant-in-aid from government
departments to reflect their status as nondepartmental public bodies – see Figure 4.
The Eden project in Cornwall is a well-known
example of a project that does not rely on
ongoing revenue public subsidy. However, it is
markedly different in scope and objectives from
the Garden and does not lend itself readily to
direct comparisons. For example: the Eden
project is on a much larger scale than the
Garden, with initial capital costs of £86 million,
compared with £43 million for the Garden; the
16
1.14 The Garden and the Millennium Commission
agreed that the project should be developed in
phases to reflect the match funding available
(see Appendix 3). The first phase included works
funded by ERDF, the WDA and the Tourist Board
and was completed successfully on time in
September 1998. However, although it had
raised further funding, including a second grant
from the Tourist Board (see paragraph 2.25) for
the next phase, the Garden faced a shortfall of
£1.4 million in the match funding it needed to
secure an equivalent amount from the Millennium
Commission, making an overall potential shortfall
of £2.8 million, with consequent implications for
the quality of the visitor experience when the
Garden opened.
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
1.15 The Garden adopted a two-pronged approach
to making up this shortfall. First, it secured
£400,000 from private sector sources and
£500,000 from the Assembly Government, to be
routed through the Tourist Board; more details
on this funding are at paragraph 2.31.
Secondly, the Garden entered into a leaseback
agreement with a commercial bank, as did
several other Millennium Commission projects,
such as the Eden Project, realising a further
£1.8 million – see box. This move, in addition to
the extra funding that had already been secured,
eliminated the funding shortfall for Phase 2 and
put the Garden in a favourable position for the
development of Phase 3.
Leaseback agreement
In May 2000, the Garden entered into a lease and
leaseback arrangement with Lombard Property Facilities
Limited (LPF, part of the Royal Bank of Scotland Group).
The deal was complicated but its main features were
that the Garden granted an underlease to LPF of part of
the Middleton Hall estate, including the Great
Glasshouse, for a premium of £11.1 million and a
peppercorn rent; the same area was rented back to the
Garden by LPF (via a sub-underlease). Of the
£11.1 million it raised from the underlease, the Garden:
I
I
I
used £1.8 million to match fund Millennium
Commission money;
deposited £8.3 million in a bank account which,
through the accumulated interest, will grow to
£10.1 million – the agreed price for the Garden
buying back the underlease after ten years; and
expended the remaining £1 million in fees.
The mutual economic benefits of the agreement arise
as a result of the capital tax allowances claimed by LPF
which were not available to the Garden, as a charity.
After opening the Garden faced falling
income and expenditure higher than
forecast
1.16 The Garden opened in May 2000. In its initial
years of operation, operating expenditure was
much higher than planned. While it succeeded
initially in attracting far more visitors than
projected in its most recent (October 1998)
forecasts, visitors then began to fall and, by the
third year of operations, both visitor numbers
and income were below planned levels. This was
partly due to the impact of foot and mouth
disease from February 2001, which caused the
Garden to close for a period and had a severe
impact on tourism across west Wales. Figure 5
sets out the differences between planned and
actual income and expenditure (the latter from
the audited accounts) in the first three years of
the Garden’s operation
Figure 5: Comparison between planned and actual
Garden performance
year 1
year 2
year 3
Visitor numbers (000s)
October 1998 forecast
175
200
225
Actual
204
192
147
+17%
-4%
-35%
October 1998 forecast
1,601
1,839
2,158
Actual
1,958
2,176
1,757
Variance
+22%
+18%
-18%
October 1998 forecast *
1,627
1,855
2,106
Actual
2,529
2,608
2,468
Variance
+55%
+40%
+18%
Variance
Total income £000
Operating expenditure £000
* Salaries, overheads and costs of sales
Note: Business Plan years are calendar – year 1 is 2000; actual years
taken from the accounts run from April to March – year 1 ends
31 March 2001
Source: Wales Audit Office analysis
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
17
1.17 Against the background of operating
expenditure far exceeding income and the
Garden not having raised additional income from
the private sector to act as a contingency, the
Garden made a number of approaches to the
Assembly Government and other bodies to
secure further funding:
a In October 2000, five months after opening,
the Garden approached the Assembly
Government for £1.2 million in revenue
funding, to be paid over two years, to develop
and secure the science and education
programmes. The construction of the Science
Centre was yet to begin and the Garden
could not employ the staff needed to run it.
This request was turned down.
In February 2001, the Institute of Welsh Affairs
published a report, An Icon for Modern Wales,
highlighting the outcome of a one day conference held
in June 1998 about the wider benefits the Garden could
bring Wales. The report also considered the expert
opinion of representatives from the Tourist Board, the
WDA, Carmarthenshire County Council and the Garden.
One of the report’s recommendations was that the
Assembly Government seriously consider annual grantin-aid to the Garden to illustrate its commitment to
investing in research and development in Wales.
b In May 2001, the Garden presented a funding
request for £622,000 a year for ongoing
revenue support to the Assembly’s Economic
Development Committee.
The Chair of the Committee subsequently
wrote to the First Minister, indicating that the
Committee was supportive of the project but
that any financial support could be offered
only on the basis of a sound business plan.
The Assembly Government told the Garden
that it could not consider such a request
18
unless it submitted a full supporting
business plan.
c In July 2001, the Garden approached the
WDA and the Tourist Board for £150,000 and
£191,000 respectively for various capital
works. These bids were not progressed
because the applications lacked detailed
costings and required further clarification and
development.
d In July 2001, the Garden met the Minister for
Culture, Sport and the Welsh Language
(whose portfolio now included the Garden
project), to request £1.7 million for
completion of the capital development
programme in time to meet a Millennium
Commission deadline of 1 September.
At the same time, the Garden sought a
further £750,000 in annual revenue funding
for science, education and the running
costs of the Garden. The Assembly
Government continued to reiterate the need
for a comprehensive, up-to-date Business
Plan before it could consider acceding to
such requests.
1.18 Against the background of mounting financial
difficulties, the Garden revised its business plan.
Based on its revised plan, in January 2002 the
Garden sought an additional £5 million capital
investment to improve the visitor experience,
with a view to generating both increased levels
of visitors (to 285,000 a year) and visitor spend.
The bulk of this additional funding was sought
from the Millennium Commission and Assembly
Government, at £2.15 million each. At the same
time, the Garden also reiterated its earlier
request to the Assembly Government for
£750,000 for its science and education
programmes for a period of three years, after
which the Garden would fund these activities.
The revised plan continued to forecast that the
Garden would generate an operating surplus by
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
year 3 (ending March 2003), with the cumulative
deficit eliminated by year 5. In view of the level
of funding being sought, the Assembly
Government, together with the other main
funders, subsequently took a more active role to
determine the problems facing the Garden and
to find ways of ensuring its long-term viability.
From January 2002, the Assembly
Government and the other main funders
took a proactive role in considering the
Garden’s problems
1.19 The Millennium Commission, while
acknowledging that the Garden’s revised plan
had certain merits, responded that its ability to
provide further assistance to projects was
extremely limited and that the Garden had
provided insufficient detail and evidence of
research to demonstrate the deliverability of its
revised plan. The Assembly Government and
other funders took a similar view and declined to
provide the funding sought by the Garden.
However, in recognition of the importance of the
Garden to Wales, particularly west Wales, in
terms of its economic impact and scientific and
educational potential, it took steps to put the
Garden on a sound financial footing. In addition
to devoting more of its own staff resources to
the issue, in April 2002 the Assembly
Government brought together the existing
funders to consider how best to proceed. It
provided short-term revenue funding to keep the
Gardens open whilst long-term solutions were
sought, and agreed with the Garden a recovery
plan and new funding regime. Each of these
issues is considered in more detail in the
following paragraphs.
together with the Garden in what subsequently
became known as the Stakeholder Group.
The purpose of the group was to consider
collaboratively ways in which stakeholders could
assist the Garden. In addition, the Assembly’s
Accounting Officer communicated with relevant
Assembly-sponsored Public Bodies to inform
them of the Garden’s financial position and what
action they should take in relation to grant
payments. The Group’s intention was to secure
a coordinated approach to dealing with the
issues around the Garden. It met regularly to
discuss the Garden’s financial situation and
consider better ways of taking forward the
Garden’s plans. It was during these meetings
that all funding partners began to gain an equal
understanding of the Garden’s financial
position, where previous public sector funding
was allocated, and why further public support
was needed.
1.21 The group’s objective was to work with the
Garden on stabilising its operations in the short
term, by improving the visitor experience and
thus generating more income. Only then could
the Garden begin to work with the Assembly
Government on its longer-term development
and, ultimately, its education and science plans.
The funding partners were also keen to
introduce better managerial and financial
control in the Garden as this had been a
universal concern.
The Assembly Government provided a
series of short-term, revenue funding
packages totalling £1.57 million to
support the operation of the Garden
1.22 In June 2002, the Garden predicted that its
1.20 The Assembly Government brought all the public
sector funding partners – including the
Millennium Commission, the WDA, the Tourist
Board and Carmarthenshire County Council –
overdraft limit would be breached towards the
end of July unless the Assembly Government
provided an immediate cash injection to help
offset cashflow problems and to sustain and
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
19
develop the facility. After much consideration,
particularly around the funding partners’
concerns regarding the Garden’s management,
the Assembly Government agreed to provide
short-term funding of £360,000, subject to strict
conditions. This funding was designed to help
the Garden with operational costs, while a major
review of its financial situation was carried out.
1.25 Following consideration of the KPMG report, the
1.23 One of the conditions was that the Tourist
Board, as the Stakeholder Group representative,
would attend full meetings of Garden’s Trustees
as an observer. Another condition imposed by
the Assembly Government was that consultants
(KPMG) undertake a review of the position of the
Garden and advise the Assembly Government
on the potential for it to become self-financing.
The Assembly Government took the view that no
new Assembly-sponsored public body funding
for capital works should be approved until the
outcome of the report was known.
1.24 KPMG reported in December 2002, concluding
that the Garden needed an immediate cash
injection of over £3 million to meet its current
creditor commitments, including its overdraft of
£2 million. The report also examined the
Garden’s likely future financial requirements
under four scenarios – see Figure 6. Each of
the scenarios required significant public subsidy
in perpetuity.
Figure 6: Business models outlined in KPMG report
Scenario
Total funding support
required to March 2009
£m
Assembly Government made clear its position
that it would not fund the Garden in perpetuity.
Nevertheless, the Assembly Government
remained committed to exploring alternative
options to secure the future of the Garden. In
January 2003, the Assembly Government made
another grant to the Garden of £1.06 million for
ongoing operational costs and to enable the
Garden to draw down Millennium Commission
funds. The funding was agreed on the basis that
the Garden would produce an updated business
plan within six months that would demonstrate
how it might achieve self-sustainability. This Plan,
submitted in May 2003, identified three key
areas for action in order to make the Garden
viable: the development of the organisation and
the people within it; a further £8 million
investment over three years in the facilities; and
the development of a comprehensive marketing
strategy (following consultants’ advice, the
Garden had at this point also decided to make
more of the geographical locator, “Middleton” in
its branding, in line with other botanic gardens
such as Kew). These moves were predicted to
lead to 250,000 visitors a year by 2008-09,
spending over £10 each. The plan forecast that,
on this basis, the Garden would break even,
before interest, tax and depreciation and
excluding the science programme, by 2008-09.
Option 1
Option 2
Option 3
Option 4
Status quo
Operational
enhancement
As option 2, with
improved
capital project
As option 3, with
free admission
7.25
8.85
11.09
17.79
Source: KPMG report, 2002
20
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
Government gives an underlying assurance to
underwrite the future operation of Middleton
through the provision of an ongoing and
substantial revenue subsidy from public funds”.
1.26 The Assembly Government was unconvinced
that investment in the revised Business Plan was
likely to lead to a sustainable and secure future
for the Garden3, nor that it would represent
value for money. It considered a number of
alternative options, including a full rescue
package where the Garden became a national
institution with free admission. In October 2003
the Assembly Government provided the Garden
a further short-term funding package of
£150,000, alongside the same amount from
Carmarthenshire County Council and £50,000
from the Millennium Commission, to support
essential running costs. The Millennium
Commission also indicated that it was prepared
for its enhancement grant of £600,000 awarded
in July 2003 for work on the double-walled
garden to be used for other capital works if this
improved visitor income. At this stage, the
financial position of the Garden was critical:
visitor numbers for the year were forecast at
120,000, and the Garden had debts of some
£2.8 million. To alleviate the situation the Garden
made 76 staff redundant, leaving only a skeleton
of 18 and remaining operational only by the
extensive use of volunteers.
1.27 In November 2003, the Garden submitted a
Recovery Strategy to the Assembly Government,
proposing an extra £3 million in funding to keep
the Garden open until 2009 (£1 million of this
was to secure the immediate future of the
Garden). However, following consideration of the
Recovery Strategy, on 10 December in a
published letter to the Garden, the Minister for
Culture, Welsh Language and Sport stated that
the Assembly Government would not provide the
funding requested, on the grounds that the
Recovery Strategy was no more than a lower
cost version of the business plan submitted to
the Assembly Government in May 2003 and was
“still based on the premise that the Assembly
The day before the Minister’s announcement, a Board
Member of the Wales Tourist Board published a report
on the outcome of a two-day thinktank to examine the
future of the Garden. Attending the thinktank were those
with experience in attractions management, financial
and organisational matters, science and healthcare.
Among the report’s conclusions was that the current
visitor proposition was extremely weak, and that the
proposals by the Trustees for improving the product
were unlikely to achieve their objectives. Accordingly
the Group felt that the Garden was unlikely ever to
break even and that a different approach was required
if public access to the site was to be retained.
In March 2004, the Assembly
Government, Millennium Commission
and Carmarthenshire County Council
agreed to support a five-year Recovery
Strategy for the Garden
1.28 Following the Minister’s announcement to
provide no further funding, the Garden
commissioned PricewaterhouseCoopers LLP to
redefine and rework the Recovery Strategy. After
intensive effort by all parties, on the basis of the
revised Recovery Strategy, in March 2004, the
Assembly Government, the Millennium
Commission and Carmarthenshire County
Council provided a joint funding package to help
stabilise the Garden, with each undertaking to
give £300,000 in 2004-05. In addition, the
Assembly Government stated its commitment to
provide a further £150,000 in each of the four
3 A view shared in a risk assessment of the plan carried out by Carmarthenshire County Council, which concluded that “the ambition to achieve financial breakeven by
2008-09 is overly optimistic given the associated challenges in increasing visitor numbers”.
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
21
Figure 7: Key features of the Recovery Strategy
I
Improved marketing activities, including partnership, to sustain the recovery
I
Active support from and collaboration with stakeholders
I
Strengthened corporate governance
I
Strengthened management, including financial management
I
Further capital enhancements, utilising up to £1.3 million of the remaining Millennium Commission grant
I
The repayment of all debts within the period of the plan, including both secured and unsecured creditors
I
Property development utilising peripheral and non-essential assets to generate income
The intention is that, by 2009:
I
Annual paid entry visitor numbers will have increased by 27 per cent, from a planned 110,000 in 2004-05 to
140,000 in 2008-09
I
Other forms of annual income, including secondary spend (such as catering) and fundraising, will have increased
by 75 per cent
I
Income principally from property realisations will have ensured that all debts have been paid
I
The deficit on trading activities from the visitor attraction will have reduced to a sustainable level which can be
met from reserves, providing a strong platform for the future
subsequent years – the first of these instalments
is being paid in 2005. The main features of the
Recovery Strategy are set out in Figure 7.
In 2004-05, the Garden achieved its
Recovery Strategy targets
1.29 Visitor numbers in 2004-05 (excluding visitors for
functions, events or educational purposes) were
102,000, slightly lower than the planned
110,000, but this was more than offset by
22
greater numbers of visitors in respect of
functions and education. Overall, the Garden’s
financial performance was comfortably ahead of
its Recovery Strategy targets, as set out in
Figure 8 below.
1.30 In addition, the Garden is seeking to raise
income through the effective development of
private sector partnerships. Progress has also
been made on a number of other fronts:
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
Figure 8: The Garden’s 2004-05 performance against its Recovery Strategy
Total operating income
Actual
Recovery Strategy
Variance
£000
£000
£000
1,095
812
283
913
713
200
Total salaries and overheads
1,239
1,140
99
Net profit/(loss) before
depreciation
(424)
(502)
78
Gross profit
Source: The Garden
a new Trustees have been recruited;
b a strengthened management team at the
Gardens is being established, adding to the
experience and competencies of the small
management team which has delivered the
Recovery Strategy to date;
c annual marketing plans are being produced
with the assistance of the South West Wales
Tourism Partnership and the Tourist Board;
d the Millennium Commission has approved a
revised capital programme; and
e the education programme continues to be
delivered in partnership with Carmarthenshire
County Council, Coleg Sir Gâr and other
education providers, with usage exceeding
forecast by 72 per cent.
1.31 The Assembly Government and all other key
stakeholders receive monthly updates on
progress against the recovery plan from the
Garden, including full details of its financial
position. The funding partners continue to
conduct regular stakeholder meetings to
consider the progress being made by the
Garden.
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
23
Part 2: Providing capital funding to the Garden
project entailed a number of benefits and risks for
the Welsh funders
The proposal for a botanic garden at
Middleton was attractive to funders but
involved risks
2.1 This part of the report considers the actions of
those administering European grants, the WDA
and the Tourist Board in providing capital funding
to the Garden to match the Millennium
Commission’s contributions and, in particular,
whether they were sufficiently alive to the risks
involved. It also considers the monitoring
arrangements in place to ensure that grant
money was spent appropriately and the potential
for clawing back grant. Issues relating to the
Science Centre are dealt with in Part 3.
2.2 The proposal for a botanic garden at Middleton
was an attractive proposition to prospective
funders. In addition to its scientific, education
and conservation objectives, the proposed
project offered the possibility of regeneration and
economic development in a deprived area. It
promised direct and indirect job creation, an
increase in tourists visiting the area, an injection
of private sector capital, promotion of local
culture and heritage, and environmental
24
enhancement. It thus succeeded in meeting the
main objectives of the European Structural
Funds, the WDA and the Tourist Board.
2.3 However, providing funding to the Garden also
entailed a number of risks. In order to assess
and manage these risks, funding partners
needed to be fully informed at all times about
exactly what was being built and how it would
operate in the long term. The ability of the
funders to manage the risks involved was further
complicated by the changes to the Garden’s
construction and operational plans. Figure 9
illustrates the changes made by the Garden to
the key operational forecasts prior to opening,
with the trend being higher visitor numbers,
increased income and increased expenditure.
Further details on each of the plans are in
Appendix 2.
2.4 A common tool for assessing risk is sensitivity
analysis – assessing the impact of changes in
key variables. Although the Garden was
consistently revising its forecasts, none of the
business plans seen by the Welsh funders
contained any sensitivity analysis to determine
the impact of these changes on the financial
viability of the project, and none of the funders
required or requested such analyses from the
Garden. These might have enabled funders to
understand the potential implications of the
Garden failing to achieve visitor forecasts, or
facing higher than anticipated expenditure, as
well as the effects of attracting more visitors than
predicted. At only one point did the Welsh
funding partners conduct a sensitivity analysis on
the Garden’s plans (the Tourist Board –
paragraph 2.26).
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
Figure 9: Changes to the Garden’s business plans tended to forecast increased visitor numbers, income
and expenditure
Annual Visitor Numbers
300,000
I
250,000
200,000
I
150,000
100,000
I
I
I
I
I
I
I
Year 5
I
Year 1
50,000
0
May 1996
August 1997
March 1998
October 1998
Plan
Income (excluding science)
3,000
I
2,500
£000
2,000
I
I
I
1,500
I
1,000
500
I
I
I
May 1996
August 1997
0
March 1998
October 1998
Plan
Expenditure (excluding science)
2,500
£000
2,000
1,500
1,000
I
I
I
I
I
I
I
I
May 1996
August 1997
March 1998
October 1998
500
0
Plan
Source: WAO analysis of the Garden’s business plans
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
25
decision was made by the Secretary of State.
At the time of the Garden’s subsequent bids,
the Welsh European Programme Executive
(WEPE), a private company limited by
guarantee, had been established to appraise
applications and approve projects 4. Prior to
approval, projects were also assessed by the
Industrial South Wales Project Assessment
Group, made up of sectoral experts, and the
Core Group, with an overall strategic remit.
Because the total cost of the Garden exceeded
€25 million, the first two grants also required
European Commission approval.
Those involved in administering
European funds appraised the Garden’s
applications prior to approving funding
but did not fully address risks posed by
changes to the Garden’s business plans
2.5 The Garden was awarded a total of
£6.4 million of European Regional Development
Funding (ERDF), through five separate grants
(see Figure 10). When the Garden first applied
for funding, the Welsh Office was responsible for
appraising ERDF applications and the final
Figure 10: Overview of European funding
Grant
amount
£000
Date
approved
Form of
Assistance
Details of funding
3,670
May 1996
ERDF
ISW Grant 94/96
(Paid via Welsh Office)
I
I
I
I
I
I
Land Purchase
Site preparation
Main entrance/ gatehouse
Middleton complex
Extensive gardens
Nursery
I
I
I
I
I
Fit outs (desks, chairs)
Salaries
Planning compliance
Design fees
Other fees
1,800
December 1999
ERDF
ISW Grant 97/99
I
I
I
I
I
Professional fees
Site works
Construction costs
Preliminaries
Main entrance
I
I
I
I
I
Interpretation
Middleton square
Gardens nursery
Signage
Planning and survey
210
December 1999
ERDF
ISW Grant 97/99
I
Marketing
479
December 1999
ERDF
ISW Grant 97/99
I
Development of Science Centre including the construction of 12 specialist
incubator units
November 2001
ERDF
ISW 97/99
I
Revenue support for the operation of the BioTechnium element of the Science
Centre
278*
6,437
Source: Wales Audit Office
* Only £96,170 was paid as the BioTechnium could no longer be marketed – see Part 3
4 In 2000, WEPE’s functions, along with most other activities relating to the administration of the Structural Funds, were transferred to the Welsh
European Funding Office (WEFO), initially an Executive Agency of the Assembly but from July 2003 part of the Assembly Government.
26
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
Responsibility for monitoring and payment of all
grants remained with the Welsh Office, subsequently
the National Assembly for Wales.
The Welsh Office was initially sceptical about
the long-term financial viability of the Garden
2.6 The Garden first submitted a bid for £3.6 million
ERDF funding in June 1995 5, under the
Regional Challenge Scheme, designed to
enhance regional economic performance and
reduce regional disparity. The Garden was
eligible to apply for this pot of funding because
it was located in the Industrial South Wales
(ISW) region within the Objective 2 area 6.
To succeed in its application, the Garden had to
show that it met a range of criteria, including
contributing to the overall Objective 2
programme and demonstrating that it could
bring private sector money into the area.
2.7 The Garden’s initial Regional Challenge bid
document did not contain detailed operational
forecasts. In July 1995, the original sponsor of
the Garden project told the Welsh Office that he
would be required to convince the Millennium
Commission that an anticipated revenue deficit
could be bridged. According to the Welsh Office
records he also “hinted that the question of
running costs would at some stage need to be
broached with the Department”. The Garden
subsequently provided the Welsh Office with a
copy of its September 1995 Business Plan (the
key elements of which are at Appendix 2),
showing that the Garden would run at a loss for
three years, before achieving a surplus in its
fourth year. The Welsh Office assessed the plan
and identified a number of risks:
a that the need for deficit funding for the first
three years demonstrated that the project
might not be financially viable in the long
term, although for the purposes of Regional
Challenge funding viability only had to be
demonstrated over two years;
b that Welsh Office analysis of likely visitor
forecasts concluded that the Garden would
attract a maximum of 190,000 annual visitors
at maturity, slightly lower than the Garden’s
forecasts of 200,000 (see also Figure 12);
and
c that the Garden had not explored all the
options for attracting private sector funding.
Before these risks could be fully addressed, the
Garden submitted a significantly revised bid for
consideration.
Because the first ERDF grant was approved
on the basis of a smaller scale, lower cost,
version of the Garden, risks were shifted to a
later phase
2.8 The Garden revised its bid for ERDF in February
1996 to reflect the decision to build the Garden
in discrete phases (paragraph 1.14 and
Appendix 3). Although the Garden proposed a
smaller scale, lower cost version of the project,
it did not reduce the level of ERDF funding it
sought. The revised bid was made on the basis
of only Phase 1 of the Garden being built. In
support of the revised bid, the Garden
submitted new visitor and income forecasts,
reflecting the fact that a smaller attraction would
attract fewer visitors (100,000 at maturity) who
would spend less. The key elements of the
February 1996 Plan are set out in Figure 11.
2.9 This smaller project partially addressed the risks
previously identified in that less private sector
5 This was shortly after the Garden first approached the Millennium Commission for lottery funding, but prior to submitting a formal bid.
6 The European Union Objective 2 programme covered areas of high economic and social deprivation.
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
27
Figure 11: The Garden’s February 1996 Plan for a smaller-scale attraction
1998
Visitor numbers (000s)
1999
2000
2001
2002
40
50
75
90
100
Total income (£000)
433
326
510
629
762
Total expenditure (£000)
498
546
617
658
683
Surplus/deficit* before interest (£000)
-66
-219
-107
-30
78
Source: The Garden’s February 1996 Business Plan
Note: This Plan, for Phase 1 of the project, did not include any scientific activities
funding was required and the forecast deficits in
the early years of operation were much lower,
due to reduced expenditure and the absence of
a subsidy for science activities as the Science
Centre would not be built during Phase 1.
However, under this plan, the Garden needed
deficit funding for four years, a year longer than
originally envisaged, and would barely break even
at maturity. In February 1996, the Garden wrote
to the Welsh Office explaining that this deficit
would be funded through a bank overdraft, thus
demonstrating viability over the Regional
Challenge Scheme two year period. However,
because the Garden’s intention remained to
complete the whole project, splitting the
construction into two phases had not removed
the previously-identified risks, but instead shifted
them to a later phase of the project.
2.10 A grant of £3.67 million was finally approved by
the Welsh Office in May 1996. Although the
Welsh Office also took some assurance from
subsequent approval by the European
Commission, we were unable, from our review of
relevant files, to find evidence that the residual
risks of the project had been recognised or
addressed at the point when the final decision to
fund the Garden was made.
28
WEPE appraised the Garden’s second
application for ERDF but did not fully address
risks posed by changes to the Garden’s
business plan
2.11 With Phase 1 of the project nearing completion,
the Garden submitted a second bid for ERDF
funds in March 1998, for Phase 2. It was
supported by a new business plan with
significantly higher forecast expenditure – both
staff costs and cost of sales – and more
ambitious visitor and income forecasts (Figure 9).
This revised plan did not fundamentally change
the nature of the project, but forecast a total of
250,000 visitors at maturity, spending £8.32 per
head from year one, a significant rise on the first
plans submitted to the Welsh Office. The plan
contained detailed evidence of new market
research, carried out by the Garden’s appointed
consultants, on which the visitor figures were
based, with revised penetration rates for targeted
market segments. The plan asserted that the
revised figures had been “refereed” by, amongst
others, the Welsh Office and the Tourist Board.
While the Garden’s earlier plans (1995 and 1996)
had been reviewed by these bodies, we can find
no evidence that the increased numbers in the
revised plan had also been subject to review
before the application was submitted.
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
The Garden had also changed another of its key
operating assumptions: scientific activities were
now predicted to be “self-funding” and would no
longer be subsidised by income from the visitor
attraction. The plan contained no justification for
this change in operational intentions.
2.12 None of these changes – on visitor numbers,
income, expenditure and science funding –
affected the Garden’s previous plan to run at a
loss for the first three years of its operations.
However, as a consequence, the risks involved in
the project had increased: more income from
visitors was required to cover the higher costs
that the Garden now expected to incur, and the
project would still not be breaking even until the
fourth year of operation. In particular, the
forecast numbers of visitors at maturity, 250,000
a year, now significantly exceeded the 190,000
visitors that the Welsh Office estimated the
Garden would attract when it approved the first
ERDF grant.
recognise that the key forecast financial data
had changed from the Garden’s original plans.
The only risks identified were those recognised
by the Garden itself in its application.
These included risks associated with delays to
construction and attracting matched funding, as
well as failure to achieve visitor numbers.
The Garden rated the risk of failing to achieve
visitor numbers as low because the forecasts
were based on market research. WEPE’s
appraisal concluded that the Garden had
provided evidence of medium-term (3-5 years)
viability as the plan recorded that the Garden’s
trustees had taken steps to establish a sinking
fund to cover early operational deficits while
visitor numbers built up to 250,000.
Neither WEPE’s appraisal nor the Garden’s
business plan addressed the issue of how the
Garden would fund any unexpected deficits if
the visitor income forecasts were not realised or
if expenditure exceeded forecasts.
2.15 The Garden’s bid was subsequently reviewed by
2.13 The Garden had also changed the way it
intended to fund deficits during the early years of
operations. The revised plan asserted that the
Trustees had taken steps to establish a sinking
fund (see paragraph 1.12), which at the time
stood at £400,000, to finance any deficit from
operations in early years. Under the May 1996
business plan, the Garden had intended that the
sinking fund would only be used to fund
maintenance and enhancement works.
The Garden had planned to use a bank overdraft
to fund the forecast deficits, although it also
aimed to raise an additional £2 million in private
funding to act as a cushion against deficits and
unexpected expenditure. Neither this aim of
raising an additional £2 million contingency nor
the overdraft facility featured as part of the
revised business plan.
2.14 The initial WEPE appraisal documentation of the
revised business plan relating to this bid did not
the Industrial South Wales Project Assessment
Group, whose membership included the Tourist
Board and the WDA. In particular, the Tourist
Board reviewed the revised forecasts and
expressed the opinion that they were “very
realistic”. The Tourist Board’s review concluded
that “the product is capable of attracting in
excess of 200,000 visitors [a year] and the
applicant indicates c. 252,420 … visitors.”
However, the review did not recognise that the
forecasts had changed significantly since the
Garden’s original plan, nor did it reconcile
differences between the Garden’s method for
estimating visitor numbers, the method the
Welsh Office used to assess the original
application for ERDF funding and the method
that had recently been agreed by relevant
parties (see Figure 12). Neither did the review
contain any sensitivity analysis on the
potential impact of failure to achieve the
revised forecasts.
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
29
Figure 12: Methods used to forecast visitor
numbers
The Garden’s original (1996) visitor forecasts were
based on a 120 minute “isochrone” – the potential
market was defined as those living with 2 hours’ drive
from the Garden. Analysis of likely market penetration of
that population showed that the Garden would attract
around 200,000 visitors at maturity. When the Garden’s
first ERDF bid was considered, the Welsh Office was
sceptical as to whether visitors would travel for two
hours to the Garden. It adopted a method based on the
experience of similar projects in Cornwall, which also
has a sparse rural population, where visitors to garden
attractions represented around 10 per cent of all visitors
to the area. Using this method, the Welsh Office
calculated that the Garden would attract around
190,000 visitors at maturity.
Subsequently, in December 1997, the Industrial South
Wales Area Project Assessment Group and Core Group
agreed with WEPE that the basis for appraising all ERDF
applications should be a 90 minute isochrone – the
population within a 90 minute drive. However, the
Garden’s increased figures of 250,000 visitors at
maturity, submitted as part of its second bid for ERDF in
1998, were based on revised market penetration within
a 120 minute isochrone.
2.16 In approving the Garden’s application, WEPE
took comfort from the due diligence work
carried out by the European Commission.
The European Commission initially expressed
concern to the WEPE about the poor quality of
the application. Amongst the European
Commission’s concerns was the risk posed by
deficits and how they would be covered if
visitor numbers were not achieved. These
concerns were passed on to the Garden by
WEPE. The Garden responded that deficits
would only be incurred if no sponsor could be
found for the science programme, even though
30
its original bid said that the science programme
would be self-funding. It also pointed to the
£400,000 contingency fund established to
cover any deficits, adding that it intended to
establish a £700,000 fund during Phase 2.
After further negotiations, the European
Commission finally approved the bid in
December 1999.
2.17 WEPE’s appraisal of the Garden’s bid took
account of the range of supporting papers
provided by the Garden, including market
research carried out by the Garden’s own
consultants. It also reflected the technical
advice provided by the Industrial South Wales
Project Assessment Group, including
representatives from the Tourist Board, as well
as the assessment undertaken by the
European Commission. It was reassured as to
the reasonableness of the visitor forecasts and
the sinking fund established to cover forecast
deficits. However, it did not appear to be fully
sighted of the Welsh Office’s earlier concerns
which meant that it did not probe the reasons
why the Garden’s main forecasts had changed;
nor did it pursue with the Garden how it
intended to remain viable in the event that its
revised forecasts did not materialise.
The WDA assessed the Garden’s
original business plan and recognised
that revenue funding was a risk
2.18 The WDA provided a total of £2.1 million
towards the costs of the Garden and the
Science Centre (see Figure 13). The WDA had
been one of the early supporters of the
concept of a botanic garden at Middleton and
provided funding of £132,000 towards the
September 1995 business plan that the
Garden needed to secure Millennium
Commission funding. This grant was
considered to be low risk: at that stage the
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
Figure 13: Overview of WDA funding
Grant
amount
£000
Date approved
Form of
Assistance
Details of funding
132
July 1995
Rural Programme
1995/96 Section 15
Contribution towards business plan – professional fees
125
March 1997
Rural Programme
1996/97 Section 15
I
Great Glasshouse design
I
Landscape design
I
Broadwalk
I
Trees
I
Paths
I
Plants
I
Hydro civils, dams & lakes
I
Design and supervision
750
March 1998
Rural Programme
1997/98 Section 15
375
March 1999
Rural Programme
1998/99 Section 15
I
Extension of funding for 1997/98 project
750
1999 - £500,000
2001 - £250,000
Joint Venture
Agreement
I
Science Centre
2,132
Source: Wales Audit Office
WDA was not committing to any further
expenditure on the Garden.
2.19 Once the Garden’s first Business Plan had been
produced, the WDA expressed a number of
concerns about the long-term viability of the
project. In September 1995, the WDA wrote to
the Garden expressing surprise that it was not
seeking further revenue funding. The letter also
detailed concerns about the Garden’s
September 1995 business plan: over-optimistic
visitor numbers in the early years; optimistic
income forecasts for events and functions; and
an underestimate of costs, such as
horticultural maintenance. The Garden
responded that its key operating assumptions
were robust and based on expert analysis by
their consultants.
2.20 In October 1995, before the Millennium
Commission had confirmed its funding, the WDA
took an “in principle” decision to provide
£1.25 million, spread over five years, towards the
cost of environmental enhancement works at the
Garden, subject to further detailed approval and
confirmation that all Millennium Commission and
other funding was in place. This decision was
based on a project appraisal of the Garden’s
September 1995 business plan, which in fact
proposed a total of £4.1 million WDA
funding 7. The appraisal recognised that other
botanic gardens in the United Kingdom were run
at a loss and required deficit funding. However, it
concluded that even if deficit funding was
required but not forthcoming, the WDA’s
investment would have “created a high quality
country park based on the restoration of an
historic landscape”, thus meeting the
environmental objectives of the grant.
7 The WDA offered £1.25 million rather than the £4.1 million sought by the Garden because of the relatively low number of jobs that would be created.
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
31
The appraisal also recognised the possibility that
capital costs might overrun and that the public
sector may have to cover those costs if funding
from the private sector was not forthcoming.
Because of this risk, the WDA felt that “some
form of control of the overall project would ... be
considered desirable” – some type of funding
bodies’ liaison committee with a
watching/advising brief.
2.21 The decision to move the construction to two
phases impacted on the WDA’s assessment of
the risks involved in providing funding. In April
1996 the Garden asked the WDA to reallocate
the £1.25 million to Phase 1 alone, with the
grant to be paid over three years. The WDA
initially rejected this request, because of
budgetary difficulties associated with shortening
the payment scheme and changes to the
administration of the Rural Programme 8, and
because of the risk that it would be providing the
same amount of money for a significantly less
ambitious project, with lower outputs in terms of
visitors and job creation. After receiving revised
forecasts from the Garden regarding job creation
under each phase, and resolving budget issues
with the Welsh Office, the WDA approved the
change in March 1997. It issued an “in principle”
grant offer letter to the Garden of £1.25 million to
be paid in three tranches, and seeking to
manage the risks of reduced outputs by
including the grant condition that the Garden
had to ensure Phase 1 was fully funded and
use “best endeavours to achieve Phase 2”.
It also required the Garden to demonstrate that
it had satisfactory construction project
management arrangements.
2.22 Before approving grants in principle, the WDA
conducted internal risk assessments and liaised
with the Garden’s professional advisers and
other funding partners to test the evidence
underlying the Garden’s business plans.
The WDA told us that it also took assurance
from the comprehensive due diligence activities
that the Millennium Commission reported it had
undertaken, although it did not see this work.
The WDA took the view that carrying out further
assessments would not be a good use of public
money and would duplicate the work of the
Millennium Commission. The WDA also
emphasised to us that, although it was
supporting specific capital works, it did not
intend to play any significant long term role in
the project.
2.23 After approving the £1.25 million in principle,
the WDA gave separate “detailed approval” to
each tranche of the grant (Figure 13). Before
releasing the funds, the WDA ensured that it
saw detailed tender documents and design
briefs, assessed supporting documentation and
carried out verification visits. It also liaised with
the Garden to ensure that claims were
submitted in accordance with grant conditions
and WDA procedures.
The Tourist Board believed the
Garden’s original business plan was
viable but could have been more
robust in assessing later changes to
the plans
2.24 The Tourist Board provided a total of £1.2 million
to the Garden in three separate grants – see
Figure 14. In October 1995, prior to the
Millennium Commission approving its funding,
the Tourist Board had decided “in principle” that
the Garden was eligible to apply for up to
£300,000 funding. In March 1997, with
Millennium Commission funding confirmed, the
Tourist Board approved £300,000 towards
construction costs at the Garden. The Tourist
8 In late 1996, the Rural Programme budget was transferred from the WDA to local authorities.
32
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
Figure 14: Overview of Tourist Board funding
Grant
amount
£000
Date approved
300
March 1997
400
December 1999
500
May 2000
Form of Assistance
Investment Support Scheme
Details of funding
I
Car park
I
Interpretation
I
Gatehouse
I
Paths
I
Audio visual facility
I
Landscaping
I
Visitor access to energy centre
I
Entrance enhancements
I
Great Glass House – visitor
facilities
Phases 2 & 3
I
Transport – internal for visitors
I
Exhibitions
I
Gallery
I
Viewing terrace
I
Boardwalk enhancements
I
Interpretation & lighting
I
Seating and shelters
I
Court garden facility
I
Walled garden
1,200
Source: Wales Audit Office
Board told us this decision was taken on the
basis of the May 1996 business plan, which
involved the full Garden project. The Tourist
Board considered this business plan to be
realistic and viable, and it had been involved in
commissioning the visitor study on which the
visitor and income forecasts were based.
The Tourist Board, with Assembly Government
approval, approved further funding on the
basis of a revised business plan without fully
addressing new risks to the Garden’s viability
2.25 In July 1999, with construction of Phase 2 of the
project underway, the Garden bid to the Tourist
Board for £400,000 towards the construction of
an Audio Visual Unit, an item not included in the
Garden’s original plans. Initially the Tourist Board
was concerned about the lack of detail in the bid
and requested further information. In response,
the Garden provided extracts from a new
business plan, dated October 1998. These
showed that the Garden had upwardly revised
its visitor forecasts again since its March 1998
plan (Figure 9): 175,000 visitors from year one,
rising to 250,000 by 2003 rather than 2004.
The Garden’s October 1998 plan stated that the
revised projections were supported by research
and analysis by consultants although this was
not included in the extracts sent to the Tourist
Board. The extracts from the October 1998 plan
also differed from the March 1998 plan by
reverting to previous plans that science activities
would be subsidised by the visitor attraction.
2.26 Because the bid exceeded £300,000, Assembly
Government approval was also required. In a
submission to the Assembly Government, in
October 1999, the Tourist Board recommended
approving the grant, but highlighted a number of
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
33
concerns. It recognised that visitor numbers in
the May 1996 and October 1998 plans were not
consistent and that it was “difficult to reconcile
the information provided”. There was no
reference in the Tourist Board’s review on this
bid by the Garden to the work it had done on
behalf of the Industrial South Wales Project
Assessment Group on the Garden’s bid for
ERDF funding the previous year (paragraph
2.15). The review highlighted risks associated
with visitor forecasts, calculating that the
Garden’s deficit would increase by £50,000 a
year for each 10,000 shortfall against visitor
targets (this is the only evidence we have seen
of any sensitivity analysis being carried out on
the Garden’s proposals).
2.27 The Assembly Government also had a number
of concerns about the bid, including: the lack of
detailed costings; forecasts of visitors generated
by the Audio Visual Unit; and the Garden’s
reliance on deficit funding for the first three
years. In November 1999, the Tourist Board
submitted a Memorandum of Responses
addressing some of the Assembly Government’s
concerns. It responded that adequate
information on costs had been supplied by the
Garden’s Quantity Surveyor. It used the Garden’s
visitor forecasts to calculate that the Audio Visual
Unit would attract 25,000 visitors (10 per cent of
total visitors), a figure it felt was “reasonable”.
2.28 In its Memorandum of Responses, the Tourist
Board was less able to resolve the Welsh
Assembly Government’s concern about deficit
funding. The business plan extracts submitted to
the Tourist Board in support of the application
stated that “a sinking fund reserve is established
to finance any deficit from operations in the early
years”. Like the March 1998 plan, the extracts
made no reference to the Garden’s earlier plan
to fund deficits from a bank overdraft nor its
previous aim of raising an additional £2 million
contingency from private sources. The Tourist
34
Board informed the Assembly Government that,
at the time, the Garden had verbally confirmed
that it had set up a £1 million contingency fund.
The Tourist Board proposed to undertake an
analysis of the arrangements once they had
been properly confirmed. Furthermore, the
Tourist Board assured the Assembly Government
that it would insist that the Garden provide a
revised business plan to all funding partners
should the fund not materialise, in order for them
to reappraise the available options. Although it
remained concerned about the bid, in December
1999, the Assembly Government wrote to the
Tourist Board, stating that it was “prepared
exceptionally in this case to approve your
grant offer”.
2.29 The Tourist Board inserted a clause into the final
grant offer obliging the Garden to provide proof
that funding provision was in place to cover
deficits projected during first three years of
trading prior to any release of grant monies.
In December 2000, the Tourist Board accepted
that the anticipated deficits at the Garden would
be funded out of the money raised through the
leaseback agreement (see paragraph 1.15),
which it felt was more than adequate to satisfy
the deficits forecast for three years. However, the
Garden used the leaseback money to attract
match funding from the Millennium Commission
for capital works and shortly thereafter, the
Garden was reliant on a bank overdraft to
cover deficits.
2.30 The Tourist Board takes the view that its
appraisal was appropriate and that the visitor
forecasts supplied were reasonable, even though
they were higher than those in the original visitor
research the Tourist Board had commissioned.
The Tourist Board also maintains that it took
sufficient steps to ensure that it mitigated the
risks of predicted deficits by carrying out
sensitivity analysis (paragraph 2.26) and assuring
itself that the funding was in place to cover the
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
predicted deficits. In addition, the Tourist Board
was of the view that the Garden’s marketing plan
would assist in meeting visitor projections.
However, we consider that the Tourist Board
could have been more robust in examining and
probing the reasons behind the changes to the
Garden’s operational forecasts, and the risks
posed by failure to meet those new forecasts.
In particular, having identified the risk that failure
to meet the revised visitor income targets would
add to the predicted deficits that it was
concerned about, the Tourist Board could
have challenged the Garden about the steps it
would take to manage additional deficits and
secure its viability should the revised forecasts
not materialise.
2.32 The Tourist Board spent a further seven months
carrying out an appraisal of the detailed
costings, the timing of the works, and the
implications for cashflow before formally
awarding the grant. During this period, the
Garden had opened and whilst it was attracting
more visitors than forecast it was also reporting
higher losses than anticipated (see paragraph
1.16). The Tourist Board was concerned at the
losses, but accepted that the anticipated deficits
would be funded out of the leaseback monies
and that steps proposed by the management to
address performance weaknesses (restructuring,
outsourcing and reduction in staff) appeared
balanced and reasonable.
2.33 In December 2000 the Tourist Board wrote to
The Tourist Board took steps to manage
risks after the Assembly Government
channelled £500,000 to the Garden through
the Tourist Board
2.31 In April 2000, shortly before it was due to open,
the Garden approached the Assembly
Government for £1 million as matched funding
to enable it to draw down Millennium
Commission funds to complete Phase 2.
The Assembly Government rejected the
application on the basis that no funding was
available. The Garden made a second
application for £1 million to the Assembly
Government which, on 19 May 2000, with the
deadline for drawing down Millennium
Commission funds five days away, agreed to
provide £500,000 towards the tourism aspects
of the proposed works, channelled through the
Tourist Board and subject to the same
conditions as the previous grant for £400,000.
The decision to fund was taken “in principle”,
subject to further scrutiny. Once the decision
had been made, the Tourist Board conducted
an analysis of the Garden’s proposed works to
identify aspects that were essential and could
be funded out of the £500,000.
the Assembly Government confirming that it was
satisfied that “the timing of the works, the
implications for cashflow, trade and staffing
levels are appropriate and manageable”.
In March 2001, the Tourist Board made its
formal grant offer to the Garden, subject to the
same conditions as the grant for the AV Unit.
Due to concern about larger than anticipated
deficits, the Tourist Board’s offer letter also
required the Garden to provide quarterly budgets
measuring performance against budget, together
with explanations for variances.
2.34 In approving the funding in December 2000, the
Tourist Board had also decided that “if possible”
some form of skills audit should be undertaken
at the Garden. The Tourist Board subsequently
conducted a site inspection into the quality of
the visitor experience (such as the appearance
and manner of customer-facing staff), as part of
its “Star Attraction” quality assurance scheme,
which concluded that there were no problems at
the Garden.
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
35
Welsh funders could have
communicated and collaborated further
to establish the extent of the financial
difficulties facing the Garden
2.35 The bulk of the resources provided by the Welsh
funders – WEPE/WEFO, the WDA and the
Tourist Board – was for capital works. The focus
of the funders during the capital phases of the
project was on their own grants; these works
were generally completed on time and to budget
(with the exception of the Science Centre – see
Part 3). Although Carmarthenshire County
Council and the Millennium Commission had
representatives on the Garden’s Board of
Trustees (in the latter case as an observer),
neither WEPE/WEFO, the WDA nor the Tourist
Board had an overview of the whole project;
they were aware of who was funding what, but
had little knowledge of the progress of other
capital works, although this might have
impacted on the progress of the capital works
which they were funding. The WDA and Tourist
Board, along with the Countryside Council for
Wales and Carmarthenshire County Council,
were part of a funders’ liaison group, which met
during the early stages of the Garden’s
development, but this group stopped meeting
after the middle of 1997.
2.36 We consider that, for a large and complex
project such as this, with several partners
funding a variety of discrete works, there was a
collective responsibility on those providing
significant amounts of public money to share
information about the progress of the whole
project – not least to ensure that their own
investments were being protected. For example,
more liaison between the funders during the
capital phase might have alerted them to the
regular amendments to the Garden’s business
plans, each of which contained different
operational forecasts. It might also have
36
alerted them to the fact that they shared
very similar views on the main risks to the
Garden succeeding.
2.37 Once the Garden opened, the ability of the
funders to oversee the Garden’s operations was
limited: the capital phase for which most of the
funding had been provided was now largely
complete. The Welsh funders have told us that,
because they were providing capital funding for
discrete works, they did not have individual
responsibility to monitor the overall operating
performance of the Garden. However, the key
objective of Welsh funding partners’ capital
investments had been to create a successful
revenue operation that attracted visitors, created
employment and boosted the local and wider
economy. In our view, therefore, there was
scope for a more collective approach, given the
significant public funding involved, to
communicate and share information about the
progress of the overall project.
2.38 Some Welsh funding partners were presented
with a number of early warnings that the Garden
might be experiencing difficulties – see also
paragraph 1.17:
a in October 2000, five months after opening,
the Garden made a formal bid to the
Assembly Government for revenue funding for
its science and education programmes;
b the Tourist Board had access to the Garden’s
accounts from December 2000 onwards,
which showed that the Garden was accruing
higher than anticipated deficits, although
during 2001 this would have been partly due
to the impact of foot and mouth; and
c in May 2001, the Garden approached the
Assembly’s Economic Development and
Transport Committee to request £622,000
revenue support.
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
2.39 Had there been more communication among the
Welsh funders, there might have been more
scope for the early identification of these warning
signs and hence a collective response. However,
Welsh funding partners were not fully and equally
aware of the problems at the Garden until the
first meeting of the Stakeholder group in April
2002. Consequently, the opportunity for funding
partners collaboratively to assist and advise the
Garden during the crucial opening period had
been lost. Just two months after the funding
partners met, the Garden reported that it was
approaching its overdraft limit (paragraph 1.22).
Clawback arrangements were in place
and would have protected public funds
in certain circumstances
2.40 In order to protect their investment, Welsh
funding partners included “clawback” conditions
as part of their grants. These enabled them to
reclaim grant money in specific circumstances.
Figure 15 sets out the clawback conditions of
each Welsh funding partner.
2.41 These arrangements were designed to enable
investments to be recouped if, for example the
Figure 15: Clawback conditions for grants
`Funder
Conditions under which grant money could be reclaimed
WEPE/WEFO
I
Overpayment
I
not using money for agreed purposes
I
changes in the nature, scale, or cost of the project
I
future of the project being in jeopardy
I
discovery of incorrect or inadequate information in the application
I
unsatisfactory progress towards completion
I
disposal of assets or assets no longer being used for their agreed purpose
I
the purpose of the project changes
I
project assets are sold or otherwise disposed of without the prior written consent of the WDA within 5 years from the payment of grant
I
there is double-funding
I
any material misrepresentation of information is provided
I
material breach of any of the terms and conditions
I
The Garden was not open for at least six months a year
I
assets were sold or disposed of without consent
I
the Garden fails to run its business efficiently, keep proper accounts and insure premises
WDA
Tourist Board
Source: Wales Audit Office
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
37
nature of the project changed, the Garden was sold
or indeed if the Garden had gone into
administration. However, as is common with many
projects that are funded by both the public and
private sectors, public funders do not take
precedence over private sector funders. Indeed the
type of security they hold over assets is different. In
addition, over time the value of some assets that are
funded by public funders diminishes and therefore
the ability of public funders to recoup their
38
investment in these assets also diminishes.
The leaseback arrangement, approved by the Welsh
funding partners in 2000 (see paragraph 1.15),
made Lombard the primary creditor. Welsh public
funding partners were also below another bank and
the Millennium Commission on the list of those with
claims against the Garden in the event of insolvency.
Consequently, the chances of Welsh funding
partners recovering any of the money would have
been remote.
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
Part 3: The Garden’s Science Centre remains
unoccupied over three years after the building
was constructed
3.1 The aim for the Garden was to be more than
just a visitor attraction. Like other national
botanic gardens in the world, the Garden’s
objective of becoming a leading international
centre for research in the science of plants was
a key aim from the outset. Unlike other botanic
gardens in the United Kingdom, however, its
scientific activities were to be partly funded by
the revenue generated from visitor income and
not from government subsidies. This was a
unique challenge; the Garden’s Science Centre
was dependent on the Garden becoming a
successful visitor attraction.
3.2 Although construction of the Science Centre
building was finished in August 2002, it is not
yet operational. This part of the report looks at
how the Garden planned its scientific activities,
what happened and the present situation.
Plans for the Science Centre were
expanded before the Garden opened to
include a start-up facility for scientific
entrepreneurs
3.3 In preparing its business plans, the Garden took
account of experience elsewhere which
suggested that, unless sponsorship could be
attracted, any science facility was unlikely to
recover more than 25 per cent of costs through
income for work done. Other botanic gardens,
such as Kew and Edinburgh, receive grant in
aid for their scientific activities but this was not
an option open to the Garden as a private
venture. As a consequence the Garden set out
to fund its scientific activities from other sources
such as income from visitors.
3.4 The first business plans for the Garden, in 1995
and 1996, forecast a fully-operational Science
Centre by the year 2000 with a deficit of
£244,000 in the first year falling to £134,000 in
the fifth year. The reduction in the deficit
assumed both rising incomes from scientific
work and the attraction of sponsors by year five.
All deficits, including the annual £134,000
shortfall, were to be funded initially from
borrowings and ultimately income from the
visitor attraction.
3.5 The original plans for the Science Centre were
predicated on an internal science research
organisation, housing the Garden’s own
scientific research team. However, by 1998 the
planned use of the Science Centre had
expanded to incorporate twelve specialised
incubator units as a commercial start-up facility
for scientific entrepreneurs. The Garden’s staff
were to occupy 20 per cent of the Science
Centre’s floor space, the incubator units 37 per
cent, with the rest used as shared support
facilities. For science entrepreneurs, the
incubator units were planned to provide a
supportive environment in the crucial start-up
years of a business, to accelerate development
of an initial proposal through to confirmation of
market potential.
3.6 A KPMG report in November 1999,
commissioned by the Garden at the request of
the WDA, provided best and worst case models
for the incubator units operation. In the best
case the business was forecast to start trading
with a surplus after two years and accumulated
deficits of £104,000. In the worst case it would
take three years to break even with
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
39
accumulated deficits of £150,000. These were
in addition to the deficits identified in respect of
the Science Centre (paragraph 3.4). However,
the Garden’s overall Business Plan was not
updated at this point to reflect the incubator
units element.
3.7 Adding the incubator units element attracted
further grant support from both the WDA and
from the European Structural Funds. However, it
also stretched the scientific and management
challenge facing the Garden from the outset:
in addition to carrying out its own botanic
research, in common with other botanic
gardens, it was now also aiming to support
outsiders developing commercial ideas. After the
project had been initiated, concerns were
subsequently expressed within the Assembly
Government’s Agriculture Division that they were
not consulted over this investment, particularly
as they considered locations elsewhere in Wales
to be better placed for such support.
40
The Science Centre building was
constructed in 2002 but there has been
very little scientific activity in the facility
3.8 In March 1998, the whole Science Centre,
including the incubator units and scientific
equipment, was costed for Millennium
Commission grant purposes at £4.8 million.
By the end of 1999, the Garden had more detailed
information on forecast costs: the building costs of
the Science Centre, excluding furniture and
professional fees, were put at £1.725 million, of
which £1.2 million was attributable to the
incubator units, the latter being supported by
grants of £500,000 from the WDA and £480,000
from the European Structural Funds. By the time
construction started at the end of 2000, firm costs
had been agreed with the Millennium Commission:
forecast building costs were £2.1 million, plus
£1.2 million to cover professional fees and fitting
out with furniture and IT. The budget for
equipment was a further £1.4 million. Figures 16
and 17 set out the planned and actual funding for
the Science Centre, together with the timetable.
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
Figure 16: Planned and actual funding for the Science Centre
Element
Building
Equipment
Road
Source
Planned funding
November 2000)
£million
Actual funding
£million
Millennium Commission
1.64
1.62
WDA
0.50
0.75
ERDF
0.48
0.48
Private sector
0.66
0.39
Total
3.28
3.24
Millennium Commission
0.7
0.00
Private sector
0.7
0.00
Total
1.40
0.00
Millennium Commission
0.06
0.05
Private Sector
0.06
0.05
Total
0.12
0.10
4.80
3.34
TOTALS
Source: Wales Audit Office
Figure 17: The Science Centre – a timetable of funding
July 1996
Millennium Commission grant agreement in principle
March 1998
Total Science Centre – buildings and equipment – costed at £4.8 million
November 1999
WDA (£500,000) and WEPE (£480,000) agree to part fund incubator units building costs of £1.2 million within a Science Centre with an
estimated overall building cost of £1.725 million
November 2000
Detailed breakdown of costs – £3.28 million for the building, including basic laboratory fittings, £1.4 million for specialist scientific
equipment, £120,000 for a new access road within the Garden leading to the Science Centre
December 2000
Construction commences
March 2001
Recognising increased construction costs, WDA approve increase in funding from £500,000 to £750,000 and complete a 15-year Joint
Venture agreement with the Garden
November 2001
WEFO agrees to provide £278,000 ERDF in revenue support for the operation of the BioTechnium
Summer 2002
The Garden decides that further capital works to improve the visitor attraction now take priority, and the equipment budget of £1.4 million is
reduced to £1 million and later zero
August 2002
Construction of Science Building at a cost of £3.24 million, within budget but nine months later than forecast. The final contribution from the
Millennium Commission towards the construction costs and the road amounted to £1.67 million
September 2002February 2005
The Science Centre building remains unequipped and unoccupied. Expenditure has been incurred on recruitment and marketing (ERDF –
£95,000 from the £278,000 revenue approved – the rest was not paid), and essential maintenance (WDA – an additional £16,000)
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
41
3.9 In March 2001 the WDA approved an increase in
incubator units funding of £250,000, taking its
investment to £750,000, and completed a
15-year Joint Venture agreement with the
Garden. Originally drafted in 1999 and signed in
March 2001 the Joint Venture Agreement
covers, amongst other things:
a control and management of the development:
for example, although these matters remained
with the Garden, the WDA’s prior approval
was required concerning the extent of the
works, timescale and cost;
b limiting grant commitment to £750,000; and
c the WDA’s entitlement to 33 per cent of gross
return in any year, an increase from 29 per
cent in the original plan, reflecting the WDA’s
higher contribution.
3.10 The view of the Garden and the WDA was that,
to provide the right environment for success, the
Garden’s in-house scientific facility needed to be
up and running before the incubator units were
occupied. However as noted in Part 1, as early
as October 2000, and before building on the
Science Centre had started, the Garden was
seeking assistance from the Assembly
Government to fund its own science programme
because internally generated funds would no
longer be sufficient. By 2001 the Garden was
requesting £750,000 a year over three years to
fund both the science and education
programmes, and these requests continued
throughout 2001.
3.11 In August 2002, nine months later than originally
planned but within the revised budget, the
building was constructed although some
snagging problems are still to be resolved.
By then the Garden had reduced its £1.4 million
budget for scientific equipment for its research
team to £1 million because further capital works
42
to improve the visitor attraction, in its opinion,
took priority. In late 2004 this budget was
reduced to zero. The lack of a functioning inhouse research facility potentially made the
incubator units less attractive to potential
customers. The Millennium Commission, for its
part, had grant supported the works on the
visitor attraction and no longer had any
significant grant funds available to further fund
scientific equipment.
3.12 In 2002, by which time its financial position had
worsened considerably, the Garden approached
the WDA to take over leasehold ownership of
the whole centre, including responsibility for
running the incubator units element. By this
point the incubator unit facility had been named
as the “BioTechnium” as it was seen by the
WDA and the Garden as becoming part of the
concept of a network of Techniums throughout
Wales (see Box), rather than a core activity of the
Garden. The Garden proposed that the WDA
rent back to the Garden the parts of the building
it needed to carry out its own research.
The Technium Concept
The Technium project involves providing infrastructure
and support services for embryonic high-technology
business ventures. It focuses on commercial exploitation
of new ideas through research and development. The
concept was initiated by the WDA and the University of
Wales, Swansea.
There are currently eight active Technium centres with
varied specialities, including opto-electronics, digital
media, and IT/ Software. In each centre, new and young
enterprises occupy “incubator” units with cutting edge
high bandwidth communication facilities. They receive
support from a team of business and technical support
staff and enjoy access to specialist laboratory facilities
and communal networking areas. Incubator units will be
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
recycled; companies will move to new premises when
they mature and be replaced by new ones. Under
current plans, by 2006-07 the Technium network will
have secured around £150 million to deliver a planned
total of 12 separate Technium sites with the capacity to
house up to 200 companies and employ 1,300 people
in high quality jobs.
The BioTechnium
In November 1999, a KPMG report for the Garden about
the BioTechnium envisaged start-ups typically taking
one to three years in the incubator before graduating to
their own premises. In the view of the Garden and the
WDA, the success of such an enterprise at the Garden
also depended on the attraction generated from an
established internal research team and from direct
marketing and support staff provided by the Garden.
3.13 The WDA, for its part, remains committed to the
project due to the economic potential and the
high quality jobs that a successful project would
create. It is considering all options, including
taking over the BioTechnium element, if other
options, such as private sector management, are
not practical. However, after more than two
years of consideration and negotiation, a transfer
has not materialised. Reasons include:
a as noted in Parts 1 and 2, the Garden has a
complex structure of ownership for its assets,
involving its own long term creditors and the
public bodies that have grant aided the
facility. All need to authorise any transfer of
ownership whilst protecting their own
interests and conforming, in the case of the
public grants, with their own differing
clawback rules;
b although funds may have been forthcoming
from the WDA’s own budget for initial basic
running costs, the issue of scientific
equipment funding and meeting deficits
during the start-up years has not yet been
resolved; and
c the Garden’s inability to fund its own research
organisation constrains the potential success
of a BioTechnium.
In the event, the priority given to seeking a
recovery programme for the Garden’s visitor
attraction and the related halt of additional
funding in late 2003 ended any prospect of an
immediate solution.
3.14 Both before and after the completion of the
Science Centre building, several expressions of
interest had been received, and inspections
undertaken, by companies interested in taking
space in the BioTechnium. However, without a
resolution of the ownership and funding
arrangements, it has not proved possible to
conclude any lettings.
3.15 Despite the Garden deciding in 2002 that it
could no longer run the Science Centre and
seeking a WDA take over, it went ahead with the
initial appointment of management and
marketing staff for the BioTechnium.
As anticipated when WEFO approved the capital
grant in 1999, it further agreed that the
European Structural Funds would provide 54 per
cent of the start up costs of the BioTechnium. As
a result, WEFO grant aided £95,000 of eligible
expenditure in 2002 and 2003 before this
element of support was cancelled.
3.16 In providing funding for the BioTechnium, both
the WDA and WEFO were looking to nurture
new business and create jobs: both sought the
creation of 51 direct jobs, the safeguarding of
24 jobs and 100 per cent occupancy after three
years. In addition, through the Joint Venture, the
WDA was seeking a return on its investment.
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
43
In the absence of an operational BioTechnium,
none of these objectives has been met. In the
meantime the Science Centre is not yet able to
be occupied. Since completion there has been
need of some repair to its roof and problems with
heating. The WDA agreed to fund 100 per cent
of the maintenance expenditure incurred by the
Garden on the Science Centre between October
2004 and March 2005, some £16,000, with a
44
view to protecting the Technium name and
image, safeguarding earlier investment and
preserving the opportunity of successful future
resolution. The WDA has received a full report on
the building’s condition and will be meeting the
original management contractor for the building
with a view to agreeing the work to be done.
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
Appendix 1: Timeline
1990
First “concept appraisal” for a Botanic Garden at Middleton
1991
Feasibility study by sponsors
1993
Welsh Office sponsor Eres feasibility study looking at four potential sites, including Middleton; decide not to fund any botanic garden
in Wales
1995
Garden submits bid to Millennium Commission
1996 - February
Millennium Commission announces intention, subject to further negotiation, to fund the Garden
1996 - 2000
Garden raises most of the match funding needed; funding sources include European Regional Development Fund, the Tourist Board, and
the WDA
2000 - April
Garden has £1.4 million shortfall to match fund Millennium Commission money; approaches Assembly Government for £1 million, in June
gets £500,000 routed through the Tourist Board
2000 - May
Garden enters leaseback deal with Lombard Bank, providing £1.8 million to match fund Millennium Commission
2000 - May
Garden opens to the public
2000 - October
Garden approaches Assembly Government for £1.2 million in revenue funding over two years, to support its science and education
programmes: request turned down in February 2001
2001 - May
Garden approaches Assembly’s Economic Development Committee for £622,000 annual revenue support; request passed on and rejected
2001 - July
Garden approaches WDA and Tourist Board for extra funding; rejected because of a lack of detail and costings. Garden also approaches
Minister for Culture, Sport and the Welsh Language for £1.7 million to match fund Millennium Commission money, and £750,000 revenue
support; rejected
2002 - January
Garden submits bid to Assembly Government for £2.15 million for capital works and repeats request for £750,000: rejected. Assembly
Government takes more active role: provides limited financial support to stave off liquidation, and brings together key public sector funders in
monthly meetings
2002 - July
Assembly Government provides £360,000 funding on the condition that Tourist Board attend Trustee meetings as observers and that KPMG
review Garden’s financial viability – moratorium on new capital funding from Assembly Government and sponsored bodies until KPMG report
2002 - December
KPMG report published, concluding Garden needs immediate cash injection and will need public subsidy in perpetuity
2003 - February
Assembly Government provides Garden with a further £1.06 million to survive for 6 months, on the condition that the Garden produces a new
business plan in 6 months outlining how it will be self-sustaining
2003 - May
Garden submits revised business plan, which Assembly Government rejects in September
2003 - November
Garden submits Recovery Strategy, which Assembly Government rejects in December
2004 - March
After substantial negotiations, the Assembly Government, Millennium Commission, and Carmarthenshire County Council agree a funding
package based on a reworking of the Recovery Strategy by Price Waterhouse Cooper LLP, with each providing £300,000 and the Assembly
Government providing an extra £150,000 annually for four years.
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
45
Appendix 2: Changes to the Garden’s Business Plans
Forecast Visitor Numbers
Plan
2000
2001
2002
2003
2004
September 1995
100
140
160
190
200
May 1996
100
140
160
190
200
August 1997
125
150
175
200
200
March 1998
150
175
200
225
250
October 1998
175
200
225
250
250
Predicted Spend per Visitor (£)
Plan
2000
2001
2002
2003
2004
September 1995
6.00
6.50
6.50
7.50
7.50
May 1996
6.00
6.50
6.50
7.50
7.50
August 1997
6.00
6.50
6.50
7.50
7.50
March 1998
8.32
8.32
8.32
8.32
8.32
October 1998
8.32
8.32
8.32
8.32
8.32
Predicted Visitor Income (£)
Plan
2000
2001
2002
2003
2004
September 1995
600
910
1,040
1,425
1,500
May 1996
600
910
1,040
1,425
1.500
August 1997
750
975
1,138
1,500
1,500
March 1998
1,248
1,456
1,664
1,872
2,080
October 1998
1,456
1,664
1.872
2,080
2,080
Total Income (excluding science) (£000)
Plan
2000
2001
2002
2003
2004
September 1995
665
1,000
1,215
1,691
1,825
May 1996
730
1,071
1,292
1,767
1.902
August 1997
880
1,136
1,389
1,842
1.902
March 1998
1,335
1,568
1,881
2,189
2,467
October 1998
1,601
1,839
2.158
2,466
2,546
46
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
Cost of Sales, per visitor (£)
Plan
2000
2001
2002
2003
2004
September 1995
1.37
1.46
1.46
1.61
1.61
May 1996
1.37
1.46
1.46
1.61
1.61
August 1997
1.37
1.46
1.45
1.61
1.61
March 1998
3.25
3.25
3.25
3.25
3.25
October 1998
3.24
3.25
3.25
3.25
3.25
Predicted Income after cost of sales (excluding science) (£000)
Plan
2000
2001
2002
2003
2004
September 1995
527
796
983
1,285
1,503
May 1996
593
867
1,059
1,461
1,580
August 1997
709
917
1,135
1,520
1,580
March 1998
848
1,000
1,232
1,459
1,655
1,033
1,189
1,427
1,654
1,734
October 1998
Predicted Expenditure (excluding science) (£000)
Plan
2000
September 1995
2001
2002
2003
2004
971
999
1,017
1,035
1,005
May 1996
1,064
1,102
1,130
1,154
1,124
August 1997
1,074
1,112
1,140
1,164
1,134
March 1998
1,059
1,280
1,300
1,316
1,326
October 1998
1,058
1,205
1,375
1,266
1,376
Staff costs (excluding science) (£000)
Plan
2000
2001
2002
2003
2004
September 1995
536
544
552
560
540
May 1996
619
627
635
643
623
August 1997
629
637
645
653
633
March 1998
613
804
804
804
804
October 1998
613
804
804
804
804
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
47
Predicted Surplus (before science) (£000)
Plan
2000
September 1995
2001
2002
2003
2004
-444
-203
-34
350
498
471
235
-71
306
455
August 1997
-366
-195
-6
355
445
March 1998
-211
-280
-68
143
329
October 1998
-444
-193
-4
400
558
May 1996
Predicted Surplus (after science) (£000)
Plan
2000
2001
2002
2003
2004
September 1995
-738
-487
-298
106
314
May 1996
-715
-469
-285
112
321
August 1997
-610
-429
-220
161
311
March 1998*
-211
-280
-68
143
329
October 1998
-209
-347
-110
256
276
* the March 1998 business plan did not include costs for science as it was forecast to be self-financing from separate revenue sources
48
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
Appendix 3: Planned phasing of the Garden project
Phase 1
Phase 2
I
Visitor arrival point and gatehouse;
I
Cascades*
I
Spinal board walk to the Great Glass House
I
Bioscope
I
Great Glass House
I
Walled gardens
I
Lakes and dams restoration
I
Welsh habitats
I
Lakeside laboratory
I
Middleton square and woods
I
Renovation of Trawscoed Energy Centre
I
Arboretum and park wide landscaping
I
Greenhouse and nursery facilities
I
Infrastructure works
I
Limited wider landscaping and infrastructure works
I
Double Walled Garden **
I
Landscaping **
I
Horticulture facilities **
I
Science facilities **
* The Cascades – a series of small stepped waterfalls which formed part of the historic Middleton estate – have not actually been constructed.
** In 1999, the Garden further split Phase 2, with those items marked with a ** being shifted to Phase 3. Further works have been carried out since 2004 as
part of Phase 4, including extra work on the double walled garden.
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
49
Appendix 4: Letter from the Chairman of the Garden
Jeremy Colman
Auditor General
Wales Audit Office
Deri House
2-4 Park Grove
Cardiff
CF10 3PA
14 November 2005
Dear Mr Colman
Introduction
1.
The creation and development of The National Botanic Garden of Wales “NBGW” is an ambitious and
visionary project, presenting significant and exciting opportunities for Wales. It is the first national botanic
garden of the new millennium and the first to be created in the UK for almost two centuries. It has also
presented considerable challenges to the Trustees and to the public sector partners, principally in Wales,
which from the outset have worked in close collaboration towards a common vision.
2.
Worldwide, botanic gardens now play major roles in science, horticulture, education, culture and tourism.
Increasingly, over the last few decades, they have also become important centres for biodiversity and
conservation, playing a role in integrating conservation and sustainable development and working
collaboratively to achieve key international strategies.
3.
The creation of NBGW coincides with a growing recognition that biological diversity is a global asset of
key importance to present and future generations. Plants are recognised as a vital part of the world’s
natural heritage and an essential resource for the planet. They are a key component of global
sustainability. It also coincides with the emergence of a confident, outward-looking Wales, with a National
Assembly committed to sustainable development.
4.
It is a precious opportunity for Wales to be the home for creating a world-class 21st Century national
botanic garden incorporating such key international objectives. The tangible benefits of NBGW on a local
and regional basis (economic, cultural, tourism, educational, scientific, etc) are significant and clearly
identifiable, and are recognised by both public and private sector funders.
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Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
Public sector support for the NBGW
5.
The support of the public sector has been clear throughout and remains strong as demonstrated by the
close partnership which continues and has indeed recently been significantly strengthened with the Welsh
Assembly Government (“WAG”). The NBGW has received significant assistance, financially and in other
forms, from the public sector, ranging from pre-project studies commissioned and supported by
Carmarthenshire County Council (“CCC”), the Welsh Office, the Welsh Development Agency (“WDA”) and
the Wales Tourist Board (“WTB”) to the current publicly announced support from WAG, CCC and the
Millennium Commission “MC”. The support of the public sector at the embryonic stage provided the newly
formed Trust with considerable reassurance in proceeding with its Millennium grant applications, which
depended on demonstrating the viability of NBGW. It is a testament to the vision and determination of a
number of organisations that the NBGW has been created, is currently viable and continues to develop.
The Board of Trustees
6.
Trustees see it as their principal responsibility to ensure the highest standards of corporate governance,
putting in management and systems to ensure the mission of the Garden is achieved and the risks are
properly accounted for and mitigated. Throughout the course of the project, from inception to current
times, the Trustees have adopted best practice in corporate governance, as has been recognised by the
Charity Commission and the Millennium Commission.
Risk Management
7.
The Trustees have throughout commissioned reputable experts to research and advise upon key aspects
of the Garden’s development, including, amongst others, KPMG, Stevens and Associates, Ilex Leisure,
Hall Aitken and Associates and PricewaterhouseCoopers. Extensive audits have been undertaken both
by the Garden itself appointing independent and reputable auditors and by public sector auditors for
each grant, including the European Court of Auditors, with no substantive issues identified. Each of the
NBGW business plans considered in the Wales Audit Office report is attributable to such expert advice
(see the attached schedule). The Trustees considered such advice in the context of the NBGW’s
development and operation and used it to support their applications to funding bodies for match funding.
Various funding bodies reviewed the advice provided, and the Trustees gained further reassurance from
these funders’ acceptance of the advice and assessment of its appropriateness.
8.
Key to the business plans and forecasts has been an assessment of potential revenue for the project,
with extensive professional advice commissioned on how the content of the NBGW should be developed
and the consequential impact on visitor numbers - for example, the increase in visitor number forecasts
in 1998 was based on the specific advice of Hall Aitken and Associates and Stevens and Associates,
prominent leisure consultants with over 30 years experience, and was reviewed by KPMG in their
assessment of the forecasts.
9.
Extensive efforts have been made at each stage of development to identify and manage risks, with
comprehensive risk management exercises at each key stage of the project undertaken by request of the
Millennium Commission and facilitated by KPMG. Major risks identified from these exercises were:Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
51
9.1 Could the NBGW be created on time and on budget?
The opening of the NBGW was achieved on time and on budget, a major success for a project of its
magnitude.
9.2 Would the Trustees be able to raise match funding of some £21.6m to match the equivalent amount
secured from the Millennium Commission?
Through an extensive fundraising effort match funds of £21.5m were secured in addition to the £21.7m
from the Millennium Commission, with considerable success (above original forecasts) in levering
significant private investment of £9m into the project.
9.3 Would the income from the visitor attraction underpin its longer-term commercial viability?
9.3.1 In terms of visitor numbers NBGW immediately established itself as one of the most visited attractions in
Wales, with visitor numbers exceeding forecasts. However, a number of events which had not been taken
into account by the various experts and could not be factored into their forecasts took place, including
the impact of foot and mouth disease, which included closure of NBGW for a short period and the
potential impact of free entry to museums.
9.3.2 Such factors as these led to lower income, with a relatively fixed overhead cost which was considered
minimal by KMPG in the evaluation of NBGW commissioned by the WAG in 2002. The short term
revenue support from the Welsh Assembly Government of 2002 and 2003 was consequently vital to
ensure the continuation of the development of the NBGW, and WAG’s support and intervention was
greatly welcomed. However, in September 2003 the NBGW was informed that the WAG would not
provide further short term revenue funding. This was a considerable test to the commitment of all
involved in NBGW.
9.4 Would separate funding be available to develop and expand the science and education programmes,
which are intrinsic to the Botanic Garden’s mission?
9.4.1 A further key issue for the Trustees was and remains the development of appropriate science and
education programmes, which are core to our charitable objectives. It was of considerable concern that
in reviewing a way forward for The National Botanic Garden of Wales these became excluded from 2002
onwards in discussions with the WAG. Before the NBGW opened it was apparent that visitor income
alone could not sustain substantive science and education programmes, akin to those of the vast
majority of national botanic gardens. This concern was crystallised in 1999 and immediately discussed
with our funding partners and highlighted to the National Assembly of Wales.
9.4.2 The support of the Economic Development Committee and Culture Committee of the National Assembly
of Wales for the Garden to receive funding was of significant importance to the Trustees. Considerable
investment has continued for our education programme, which has yielded significant benefits and
gained wide recognition, resulting in the resurgence of confidence on the part of educational
establishments and the public in the education programme provided.
52
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
Current position
10. It is a testament to the determination and effort of my fellow Trustees, staff, volunteers, supporters and
the public of Wales and beyond that during this extremely difficult financial period between 2003-2004,
when the threat of liquidation was real, NBGW survived and has subsequently been able to prosper. It is
also a testament to the clear commitment and support of our stakeholders for the vision of NBGW and
its importance to Wales that further funding was forthcoming.
11. In 2004 a Recovery Plan was put in place, agreed with all major stakeholders, which has been pursued
with diligence. A further injection of funding was received in 2004 from the Welsh Assembly Government,
Carmarthenshire County Council and the Millennium Commission.
Given this support, dedication and commitment the trading position of NBGW has improved significantly.
Highlights include:I
Bottom line forecast exceeded by 16% for 2004/05, a trend continuing for 2005/06.
I
£470,000 of further private sector funding secured for specific capital enhancements.
I
Visitor number targets exceeded by 13% in 2004/05, with a year-on-year improvement for 2005/06
of 24%.
I
Year-on-year favourable trading improvement of 55% (£518,000) for 2004/05 and a further year-onyear improvement of £226,000 to 31st August 2005 (net surplus of £120k vs £104k deficit).
I
Market research provides evidence of 94% of visitors being satisfied or very satisfied with their
experience of visiting NBGW
I
Continued to deliver the education programme, with strengthened partnerships with CCC,
Coleg Sir Gâr and other education providers and with usage exceeding forecast by 72%.
I
Continued to deliver many key policy objectives of stakeholders, e.g. Tir Gofal, Biodiversity Action
Plans, etc.
I
Continued to deliver conservation research on rare and endangered Welsh plants, supported by
private funding.
BioTechnium
12. The BioTechnium, considered as a key node of the Technium network, was progressed with the full
support of the WDA as joint venture partners following feasibility studies undertaken by KPMG, funded
and commented upon by the WDA. We were encouraged by the pragmatic approach of the WDA in their
support to the BioTechnium, a close partnership which continues. We were indeed grateful to the WDA
for their commitment to take lead responsibility for resourcing and driving the project forward as
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
53
communicated to the Millennium Commission and Welsh European Funding Office in early 2003 and are
further encouraged by the continued commitment of the WDA and other stakeholders in the project.
Recent developments provide renewed confidence that this important element will be delivered
successfully in partnership.
The future
13. Despite the complex nature of the project and relatively short timescales much has been achieved in
ensuring strong foundations for a national institution which will provide continuing benefits for the long
term. Despite changing circumstances and unforeseen external factors the current financial position of
the Trust exceeds original forecasts on which the project was progressed. Firm and agreed plans are in
place for the medium term, ensuring financial sustainability, with NBGW and stakeholders working closely
to deliver these. The business plan of 2004-2009 is successfully being delivered. Financial trading targets
and key milestones have been met or exceeded with income and visitor numbers above forecast and
overheads being controlled within budget. In recognition of the importance of the National Botanic
Garden of Wales and its objectives, including biodiversity and the sustainable agenda, further funds have
been secured from the Millennium Commission and the private sector.
14. With the continuing support and close collaboration of our stakeholders, the strength of the vision for
NBGW, realistic resources and the support of the public of Wales and beyond we are confident that
NBGW will fulfil its potential and meet its objectives in full. It is a key national asset in which all should feel
pride, and a legacy of the Millennium for this and, most importantly, future generations.
Alan Hayward
Chairman
The National Botanic Garden of Wales
54
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
Summary of professional advice for
Business Plans and audits for The
National Botanic Garden of Wales
The summary below provides some information on
the extensive professional advice commissioned by
reputable experts to research and advise upon key
aspects of the Garden’s business plans as referred to
in the Welsh Audit Office report. It does not highlight
the extensive input of third party organisations and
funders into business plans. A summary of the audits
undertaken for identified projects funded by the
Welsh Funders is also provided for which no
substantive issues have ever been identified and
grant payments received in full.
Professional advice
Business plan
Professional advisors
Advice provided
September 1995
Ilex Leisure
Visitor numbers and income, marketing budgets
KPMG
Financial
Symonds
Cost planning (capital)
Ilex Leisure
Visitor numbers and income, marketing budgets
KPMG
Financial
Symonds
Cost planning (capital)
Colvin & Moggridge
Horticultural overheads
Fordnham & Partners
Facilities and maintenance overheads
Ilex Leisure
Visitor numbers and income, marketing budgets
KPMG
Financial
Symonds
Cost planning (capital)
Colvin & Moggridge
Horticultural overheads
Max Fordnham & Partners
Facilities and maintenance overheads
Hall Aitken and Associates
Business plan including detailed market context to establish visitor numbers and income
Symonds Group
Cost planning (capital)
Stevens and Associates
Visitor numbers and income
KPMG
Financial
30th March 1999
Stevens and Associates
Business plan review
27 July 1999
KPMG
Business plan appraisal
Recovery Plan 2004
Appraisal
PriceWaterHouseCoopers
May 1996
August 1997
March 1998
October 1998
October 1998 further supported by
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board
55
Audits and Project Monitoring for Welsh Funders
Projects
Grant
£000’s
Audit certificate
issued by
Other Audit visits etc
European Regional Development Fund
ISW (94-96) Welsh Office : 52512001
3670 Price Waterhouse
KPMG
European Court of Auditors (April 1999)
ISW (97-99) Welsh Office ref: 51008
1800 Issued annually by KPMG
Mazars audit acting on behalf of European Commission (May 2004
ISW (97-99) Welsh Office ref: 51798
210 Issued annually by KPMG
ISW (97-99) Welsh Office ref: 52275
Issued annually by KPMG
Objective 1 ref: 47027001
WEFO audit team (2002)
95 Issued annually by KPMG
Wales Tourist Board
Project no. 40018 (97-99)
310 Price Waterhouse
KPMG
Relevant documents made available to WTB at site visits including invoices,
trade contract payment, certificates issued by Schal (project manager) and
certified by Symonds Group (QS) and bank statements
Investment Support Scheme
Project no. S4/55479
400 Issued with each claim by
KPMG
All original invoices and valuations sent to WTB for inspection. Invoices returned
duly stamped by WTB
Project no. 55470
400 Issued with each claim by
KPMG
All original invoices and valuations sent to WTB for inspection. Invoices returned
duly stamped by WTB
Investment Support Scheme
No. S4/55479
100 Issued with each claim by
KPMG
All original invoices and valuations sent to WTB for inspection. Invoices returned
duly stamped by WTB
Rural Programme (95-96)
132
Grant claim and associated expenditure incurred by Dyfed County Council
Rural Programme (96-97)
125
Project reports submitted to the Millennium Commission made available to WDA
together with other relevant information
Rural Programme (97-98)
750
Project reports submitted to the Millennium Commission made available to WDA
together with other relevant information. Invoices and trade contract payment
certificates supplied
Rural programme 98-99
376
Project reports submitted to the Millennium Commission made available to WDA
together with other relevant information. Invoices and trade contract payment
certificates supplied
Joint venture agreement 2001
750
Copy invoices supplied with grant claim by NBGW. WDA regular site visits and
attendance at project meetings
Welsh Development Agency
Technology Budget
56
21
Copy of invoices supplied with grant claim
Funding for the National Botanic Garden of Wales provided by the Assembly Government, Welsh Development Agency and
Wales Tourist Board